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Inflation is skyrocketing and commodity prices are rising. Consumers are feeling the pinch as the cost of living continues to rise. So, stay on your guard. Inflation is a sneaky thief that can steal hard-earned money from your wallet.
The consumer price index (CPI) measures the average change in the prices of consumer goods and services purchased by households. It rose 8.6% in May, an even larger increase than economists had expected. Incidentally, this is the largest increase since 1981. Three factors have contributed to this: rising oil prices, rising commodity prices and low unemployment, which has led to higher wages.
Inflation is not a new phenomenon; Nevertheless. It has increased at an alarming rate due to the aforementioned factors.
The best protection against inflation is to have a diversified portfolio of assets, including stocks, bonds, commodities and real estate. In this article, we’ll discuss these assets so you can maximize your returns while minimizing risk.
Best hedge against inflation: gold
Gold is one of the most traded commodities in the world. Its inherent properties make it a suitable investment for people who wish to protect their investments against inflation or who wish to invest alongside other assets.
Gold is unaffected by changes in monetary policy, interest rates or other economic factors that may cause inflation. The asset does not lose value when governments print more money to pay off debts or finance wars.
In times of economic turmoil, gold is often seen as a safe haven because its value does not change with the economy. Its supply is limited compared to other assets, with more growth potential, such as equities or real estate.
Moreover, there is another way to invest in this asset; by gold stocks.
Gold companies extract raw materials from the earth and refine them into pure gold or various products such as coins, bullion, jewelry, ornaments, and electronics. Gold mining companies can be public or private entities. Some of these entities are small-scale, while others are large-scale gold mining companies with thousands of employees.
Real Estate Investment Trusts (REITs)
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REITs are investment vehicles that own income-producing real estate. They’ve been around since the 1960s, but they weren’t considered a mainstream investment until the 1980s when they became more popular among individual investors.
REITs are an alternative to direct investment in real estate. Investors could invest in a REIT and gain exposure to income-generating properties without worrying about the day-to-day operations of the business.
REITs also allow investors to diversify their portfolios by investing in different types and sectors of real estate, such as retail, office, industrial, etc.
Consequently, there are many types of REITs, each with its own niche market. Some specialize in commercial real estate, while others invest in residential properties or industrial buildings. If you believe in one more sector, such as data centers, for example, it is worth investing in it.
It’s easy to see why REITs are attracting so much attention. They give 90% of their profits to unitholders who can benefit from them as long-term tax shelters. In a market where it can be difficult to find a consistent dividend yield, REITs are considered a staple of many investment portfolios.
Better hedge against inflation: investing abroad
Investing in international companies can be a wise choice. It can diversify your portfolio and help you stay ahead of the game. You can invest in foreign companies in several ways, most commonly by purchasing American Depositary Receipts (ADRs).
ADRs allow companies whose shares are listed in other countries to trade on US stock exchanges and gain greater visibility for international and non-US based companies.
Investing in foreign companies is a complex and difficult task. One of the most important factors is the country’s legal system. A country’s legal system can have a significant impact on the success of an investment and how long it will take for it to start making money. Investors should understand the laws and regulations of the country in which they are investing before committing their money.
Additionally, there are other aspects that investors need to consider, such as cultural differences, government regulations, and corruption rates.
Investors should also be aware of the level of risk they wish to take with their investments. There are several companies in the world, such as Canadian natural resources (NYSE:CNQ), for example, which are very safe and have a regulatory framework comparable to that of America. But then you’ll have companies like the Chinese multinational tech conglomerate Tencent Holdings (OTCMKTS:TCEHY). It is a proven player but operates in China, which has a very complex regulatory environment.
Therefore, do your homework when investing overseas.
ETFs and Mutual Funds
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Exchange-traded funds (ETFs) and mutual funds are two types of investments that provide stable returns to their investors. These investments have a low risk approach and are therefore long term investments.
ETFs are an investment vehicle that tracks a specific index, asset class or baskets of assets such as stocks, bonds, commodities and currencies. There are several reasons why ETFs are popular among investors.
First, ETFs have low fees and transaction costs. Second, ETFs are traded on various exchanges and platforms. This makes it easier for investors to access them. Third, due to their low fees and low transaction costs, ETFs offer an opportunity for high investment returns.
A mutual fund is an investment company that pools investors’ money to buy securities, such as stocks or bonds, to diversify portfolio risk and provide regular income to its shareholders.
Mutual funds are a popular investment option because they offer diverse investment options, low fees, and the ability to diversify your portfolio. They have been around for over 100 years as an alternative to investing in individual stocks or bonds.
Mutual funds allow investors to pool their money with others and invest it in a variety of securities, including stocks, bonds, and real estate. This allows them to obtain higher returns than if they invested individually.
Best hedge against inflation: long-term stocks
Long-term stocks, stable investments and diversification are the three pillars of financial planning.
Long-term stocks are a safe investment because they are less volatile and have a low risk of losing value. Investors can hold stable investments for long periods and expect them to increase in value. Diversifying your portfolio with stocks and stable investments is important for achieving your financial goals.
One of the reasons why long-term stocks are preferred is that they offer a certain level of stability. They have low volatility and less risk than other types of investments.
Additionally, diversification is a way to reduce risk in an investment portfolio. It ensures that each investment does not have too much impact on the overall value of your portfolio.
They’re great for your wallet, so it really depends on what you’re looking for. Some offer higher yields, some have extensive product portfolios, and some have proven track records.
At the date of publication, Faizan Farooque did not hold (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.