If you want your money to work for you not to you, you have to invest in non-depreciating or inflationary places. With a cherry on top, you could also pay little to no taxes.
So what’s the catch?
Hiding your money in Nicaragua to avoid taxes?
No don’t worry, that’s only for the ultra-rich.
We are talking about strategies for everyone with as little as $10 down.
It is known that the wealthy diversify their portfolio and only a sliver, exactly 7% of their income comes from their salary.
The rest is either in the stock market, businesses they own, royalties or real estate, to name a few.
Of course, if you want to get fancy, and why not, there are also dividends, capital gains, and startup investing to grow your wealth.
But for the traditional investors, let’s stick with the basics.
Anyone can take advantage of these asset classes that perform well in inflationary environments.
It is important to note that there are no assets that technically can fully hedge against inflation otherwise it wouldnât be considered a commodity or anything that has a monetary value behind it.
As a quick refresher, inflation occurs when the economy is booming and there is economic growth. People are borrowing because interest rates tend to be lower, yields are higher for bonds, things are cheaper and life is good. As a result, in order to decrease spending and make goods cheaper, inflation kicks in. This makes the dollar amount worthless so to buy a slice of pizza tomorrow instead of today, it would be $5 instead of $2.
The moment I get back to campus, Iâm going straight to Fresh Prince Pizza on you guessed it, Prince Street in downtown Greenwich Village.
Mmm.
Iâm salivating already.
Anyway, as with the pizza, you want to take advantage of certain asset classes such as stocks before they become less worthy due to inflation and as a result, will have to pay higher taxes when or if you decide to sell them.
Before we dive into the assets, letâs examine if there is a way to can go against inflation so we can get the most bang for our buck.
Go Against Inflation
Well since inflation decreases the amount of money spent due to an influx in spending overload, people tend to spend more cash and as a result, the national savings decreases which leads businesses to go out of business.
To go against inflation, you must save and essentially stock up when the sales are right, pre-inflation so you wonât need to buy when the price of the goods rises.
That is your best bet, otherwise, when it comes to investing, there are many options.
So what do these assets look like?
Donât worry, there arenât secretly actively traded by a portfolio mutual fund manager that takes 30% of each return.
They are the most common investments that we listed above.
These include:
Treasury Inflation-Protected Securities (TIPS)
As with every treasury bond or loan, they are very secure and always profitable but are lower on teh return side. These are types of U.S. Treasury bonds that are DESIGNED to protect investors from inflation and twice a year, TIPS fixed rate changes based on eh inflation rate so the rate of return is adjusted. This is your best bet. You can choose between a 5, 10, or 30-year maturity loan.
Real Estate or Real Estate Investment Trusts (REITs)
Self-explanatory.
Rent out a property and make a commitment to either pay out your mortgage on your residential home or reinvest that money into the market. Not everyone is able to afford a second property, let alone upkeep their own property.
If you are in that boat, not to worry, you have many other options to choose from but remember, taking out a mortgage does mean debt but it isnât bad debt. If you are purchasing a property in a good neighborhood and you believe the sale price will increase, it is worth it to snag!
The rich can sense a deal and take that risk before itâs too late! Not only do property prices and rental income tend to rise when inflation rises, but there is more available real estate on the market because people arenât able to afford it.
It is best to buy pre-inflationary periods but if not, if you have cash on hand and able to take out a mortgage, go for it since you have more selection during inflationary periods.
Leveraged Loans
These are loans that are made to companies that have high levels of debt a.k.a a low credit score. Just like with an individual. They are referred to as CLOs (Collateralized Loan Obligations) and have a floating rate yield meaning they hedge against inflation.
Commodities Not Cash
Of course, it is essential to have cash on hand, specifically 6-12 months leeway in case you lose your job, and in that time of searching for a new one, you will be able to support yourself.
But when it comes to inflation, cash is your worst enemy. Even in the best cycles of economic prosperity and no inflation in cite, cash will still depreciate in value simply because it isnât earning interest and the dollar amount goes down by a fraction of a percent daily.
Instead commodities such as:
-Gold
-Oil
-Metals
These all hedge against inflation meaning go against the deflationary pricing and they, in fact, rise greatly during an inflationary period because especially gold in particular is known as an alternative currency, in countries whose currency is getting stronger.
These are all physical assets as well that tend to hold their value.
Similarly, additional commodities include a broad range of items such as:
-Metals
-Juice
-Gas
-Foreign Currencies
-Meat
These are indicators for when inflation will rise.
As the price of a commodity rises, so does the price of the products that the commodity is used to produce.
Quarantine?
It may feel like another quarantine shutdown approaching but don’t worry there is no virus it is just stocking up. It isnât a bad idea to buy in bulk because prices will rise like crazy if there is an economic activity so if possible, buy non-perishable and frozen goods in bulk at brick and mortar stores such as COSTCO or Walmart!
The beauty of inflation, if there is beauty at all, is that you can predict it.
Whenever there is a high, there will be a low, a.k.a, inflation to counteract the immense amount of spending.
These are the best foods to stock up on since their prices project dramatically during inflationary periods:
-Canned Vegetables
-Dry Fruit
-Beans
-Corn
Sale Time
Along with food, if you have anything that you put on hold to sell because you either didâ have the time or energy to do so, pre-inflationary periods are the best time to trade in your car and sell any valuables since they will go dramatically down in price once inflation hits.
Save
We mentioned how vital it is to save pre-inflation because the value of your money will dramatically decrease so as much as you can, stash away into investments.
To make more than a .001% on your cash, stash it into CDs, high-interest savings account, or mutual funds as your best bet. They can be passively traded, meaning no active broker that charges fees, and this will allow you to have peace of mind when teh value of the dollar decreases
Remember, although the stock market is trading in real-time, it isnât trading for today, but for months down the road.
In order to plan for inflation, you must invest in these asset classes that outperform the market during these pesky climates.
They aren’t complicated and with as little as $5 and or a strategic budget strategy, anyone can follow these steps to become more financial freedom.
No excuses allowed.
They will only set you back.