The Inflation Crisis! How To Prepare for 2022!!

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Inflation has been crazy this year! In this video, I break down the top 5 investments to help beat inflation.

1. TIPS (Treasury Inflation-Protected Securities)
TIPS are Treasury bonds issued by the US government just like the regular government bonds with one fundamental difference. With TIPS, the principal amount rises with the rise in inflation making sure the investor conserves purchasing power. Keep in mind though, the principal amount for TIPS also goes down in case of deflation.
The current variable interest rate for TIPS is 7.2% which is higher than the inflation but if we subtract the inflation rate from TIPS interest rate, we only get a real return of 1%. So do not rush to invest all your money into TIPS, just a portion of the investment would be sufficient.

2. Commodities
Commodities are raw materials such as oil, precious metals, natural gas, wheat, corn etc. Inflation is measured by an indicator called the Consumer Price Index (CPI), which includes groups of products that consumers regularly buy. Logically that would include wheat, corn, and products that require oil or gas to manufacture. So if you’re invested in commodities while the inflation is rising, it is natural that you’ll not only be hedged but also make returns on your investment. With Covid still looming around and commodity prices high internationally, it is a good time to invest a part of your portfolio into commodities. Commodities are traded in the futures market where the contracts are bought and sold at a certain time in the future. It is better to invest in a commodity ETF that is even more diversified and optimal for returns instead of just investing in a single commodity. Dow Jones Commodity Index has outperformed even the stock market in the last year with a total return of 39.7% (Reiff, 2021).

3. Real Estate
Real Estate investment has always stood the test of time and is always a great instrument since it has intrinsic value. It also keeps up with inflation due to the necessity surrounding it, people will always need home and the high housing demand during and after Covid lockdowns has not gone unnoticed. Physical real estate investments are tangible but illiquid. If you want the same returns of a real estate investment but also the liquidity of a stock market, you would instead go for REITs (real estate investment trusts) but a physical house will have tenants paying you rent regardless. So it’s up to you to make that choice but when choosing REITs, scout for hot property sectors. In the US, the healthcare industry is one of the fastest-growing sectors with growth in medical buildings, care centers, elder-care facilities, and retirement centers.

4. Gold
How could we skip Gold. Before all these fancy assets, Gold was the historical symbol for hedging against losing purchasing power especially in countries where currency quickly loses a lot of value. Gold is treated as an alternative currency in some places as it is also a tangible asset. However you need to watch government interest rates, to curb inflation, governments raise inflation rates to reduce money supply in the market and if those interest rates pay significantly higher than Gold will not be a blind choice. Gold saw an annual return of 24.6% in 2020 (Gold Outlook 2021, 2021).

5. S&P 500
The S&P 500 index is the exchange traded fund listing top 500 performers in the stock market. Other than a few bad years when the entire market crashes for example back in 2008. S&P 500 has always brought in exceptional returns and is often used as the benchmark by many investment management companies and mutual funds. Last year the annual return for S&P 500 stood at 34.5% (Reiff, 2021) which is way better than the inflation rate.