How to Guard Yourself and Your Assets During Inflation

Inflation is defined as the rate at which the value of a currency is falling and as an outcome, the prices of goods and services are increasing, in other words, things cost more and your money becomes less valuable, making you want to change your strategy of handling the finances and protect the value of money.

The year 2022 has already crossed the half-year close, earlier this year there were signs of positivity of growth, however, factors like the growing of  Omicron infection swept the country, then in February this year, Russia invaded Ukraine giving them hope a jolt by slowing down the global economic growth. IMF publications in “World Economic Outlook”  showed a significant slowdown in global growth on 2022 adding to inflation.  The process of fuel and food increased rapidly which hit the low-income countries hardest. It has cut India’s GDP growth rate from 9%  to 8.2% for 2022  and the growth projection is 6.9% for 2023.

In the recent news the Governor, Shaktikanta Das of RBI raised the inflation forecast numbers to 6.7% for 2022-23  which was at 5.7% in April 2022. He said that expecting a normal monsoon and considering the average crude price per barrel or 2022 will be $105 per barrel in the Indian basket, hence the projected inflation numbers. This increase in the inflation projection comes as the retail inflation remains above the comfort level of the RBI for a steady 4 months now, mainly as we said before due to the  Russia-Ukraine war which has impacted the crude oil prices all over the globe. It has projected the inflation for the next Quarter (Q2) in September as 7.4%.

 

However, the inflation has been predicted to come down by December this year at 6.2%  and further reduce to 5.8% in March of the fiscal year. The Geo-political situation remains fluid in the commodity market remains on the edge.

Plan for Inflation; Protect your Assets and You.

Inflation is a natural phenomenon that occurs in an economy, but an intelligent investor can adopt a few strategies to combat the effect of inflation and make sure you have enough savings for the future. Let’s see what are options available that are worth a thought.

• Investing in Real Estate:  During the time of Inflation and not to mention the great recession in 2007 it was one of the things that have been a boon to many. Renting a property can be an earning opportunity when you are the direct owner of the property. When inflation rises so does the value of the property, and the rent charged will be automatically higher. If you have purchased property by borrowing at a fixed rate then you can benefit from inflation. It will be good to mention that in order to curb inflation RBI will have the repo rate which is at around 90 points currently, as a result, the banks have increased the rates of lending impacting the existing and the new loan borrowers with higher EMI’s to pay. This is one of the effects on your life goals if your investments fall short of the returns which makes things tougher.
• REITs as an alternative option: These are more liquid investments that can be purchased and sold easily in the market. REIT companies are those that own and operate the portfolios of all properties be it Residential, commercial, or industrial. Providing income in form of rent and leases will yield higher than the bonds as their  operatives costs will more or less remain the same, the advantage being the higher rates a positive for them
• Inflation-based products: The effective way to moderate the effect of inflation is to invest in inflation-based products. For example: In the US there are Treasury Inflation Protection Securities (TIPS) or Managed Futures in the US. Similar products are yet to be available in India. So we have to look at commodity futures which include a wide range of options from Grains, pulses, and oil to precious metals. We should keep in mind that commodities are extremely volatile as they are based on Demand and supply which are affected by Geo-political tensions. However, you can consider buying shares from commodity producers as they seem to do good when the commodity prices rise.
• Keeping the costs low: Desperate time calls for desperate measures, after the pandemic if you haven’t looked at the budget then you can reallocate it. Cut on expenses that don’t matter and save on costs by keeping a simple lifestyle while you meet your other financial priorities.  For example; some people may choose to cut down on fuel and walk or use a cycle to reach the office premises.
• Diversify your investment portfolio: Whether it is hedging in inflation to protect yourself against inflations where you invest in gold which has held its value for past hundreds of years, its value has been increasing but it’s a steady wait every few years to gain from inflation though. What is important is that keep a diversified portfolio whether is stocks or bonds, or government securities in order to maintain an inflation-balanced investment portfolio?

In the words of investment legend, Barren Buffet said in order to beat inflation

“Be exceptionally good at something, the best thing to do is invest in yourself.”

In recent news, Google CEO Sundar Pichai informed the internal employees that the company will be going through a hiring slowdown. Although hiring will not be entirely frozen, Google will focus its resources on high-priority areas. This proves that investing in upgrading or acquiring skills is the right choice.

Upgrade your skills which is inflation safe.

The next-best course of action to protect against inflation, Buffett says, is to own a part of “a wonderful business.” That’s because no matter what happens with the value of the dollar, the business’ product will still be in demand.

Take away here is that rising inflation is a concern for a working executive. Inflation is a natural phenomenon and will occur at regular intervals, but it’s smart to keep up and make changes to your savings.

Financial planners are great at predicting the sway of inflation with the study of a variety of factors, are you also the one who is looking to beat inflation this time?