Table of Contents
In most markets and economical situations, there is always the tendency for prices of commodities to go a little bit overboard than the usual price. This process may profit some people while others may run the risk of loss owing to the price of such commodities.
When there is such a rise in the economy, in the prices of goods and services rendered to people, it leads to “inflation”.
Basically, inflation happens when there is so much demand chasing just a few goods or services hence the rise in price or a fall in the value of money.
No matter the reason for inflation in the economy which affects the value of money or the rise in commodities, there are always ways to benefit from inflation. In most cases, consumers experience little benefits and a lot more if they have certain assets in the market that is affected by inflation.
Checkout: 12 Tips on How to Survive High Inflation
Imagine being an investor and having a rental real estate property and there is inflation on such properties, you are definitely going to benefit from it doubly. First of all, the overall value of your property rises and secondly, you can increase rents while your mortgage on the property remains the same.
Sometimes, people have some goods stored in the warehouse which before the inflation the price was at a low rate, when there is high inflation which affects such commodities the owner is bound to make a significant profit as he sells using the price which has gone high as a result of inflation.
As you try to benefit from inflation, always remember that once there is a fall in the value of money, there is also a rise in the value of money down the road.
Ways to Profit from Inflation:
Know that inflation is never going to go away (in the sense that it is recurring), why not make a profit from it?
Of course, no sensible person will like to pay higher for stuff, however, if you are an investor why not benefit from inflation trends?
Here are 6 ways you can boost your net worth by profiting from inflation:
1. Leveraging Loans:
Consider buying cash-flowing assets that cover the debt payment, using less amount of your own money, and your return on your investment increases.
In an inflationary economy where a debt payment is fixed, the cost of the debt becomes less, this is because the dollar loses purchasing power and your investment grows, as long as you are purchasing the assets that hedge against inflation.
Remember, that you only owe the bank the agreed payment. The rising cost flows straight into your purse. Sometimes you can purchase these properties such as real estate by collecting a debt from the bank once inflation affects it the rent charges will definitely increase, along with the overall value of the property.
2. Investing in Commodities:
Most business owners make a lot of money when their commodities are hedged against inflation and this is because they are not selling time but commodities, which if you consider it, is relative to time.
Here are 2 top commodities that perform well historically in a period of high inflation:
i. Diversify in Gold:
Honestly, the struggle to keep up with the rate at which the cost of living is rising is so overwhelming. Hence, to combat these soaring costs and benefit from it by preparing for market volatility, diversify into Gold.
You see stock market volatility can be financially damaging. However, the gold values are inversely correlated with the dollar. When one goes up the other goes down.
As a person planning for retirement, this is one of the options to diversify your fund and make a profit during inflation.
ii. Trading Crude Oil:
For traders, crude oil is one of the most profitable commodities. Although it is not easy, especially when you don’t have the right and you are not aware of its inventory. With the “buy and hold” strategy, crude oil traders benefit a lot from Inflation.
It works on the principle of demand and supply just like every other commodity. Traders here are very calculative, if a trader’s production turns out to be accurate they immediately close their position and make lucrative profits. Whether a small firm, a leading firm, or an individual trader, crude oil is highly profitable.
By devising a sound strategy, knowing the crude oil inventory today, and patronizing the right investors or firms like Enrich Broking, you will be able to real enormous benefits. Just know and play your games well.
3. Consider Real Estate:
This is one of the lucrative ways to make a profit when there is inflation. As inflation goes up your fixed-rate mortgage is likely to appreciate in value while the monthly service cost of the mortgage stays the same.
When you go for real estate, you are insulating yourself from rents. Rent is affected due to inflation surges just like other commodities out there. Though mortgages are less flexible than rental agreements, they have the upper hand when it comes to advantages over rentals.
If you own or invest in rental real estate, you can leverage high inflation to increase your rental income by increasing rents.
Real Estate works very well with inflation. Look at it this way; as inflation rises, so does the value of the property and also the amount of landlord can change for rent. A landlord may decide to increase his rent from a specific dollar amount to another because of the rise as a result of inflation. This makes the landlord earn a higher rental income over time.
And this is why rental real estate is one of the best ways to hedge your investment portfolio against inflation.
So many people invest in real estate businesses and during inflation, they stand to benefit unsurprisingly more. Although remember as business owners, it could be a win-win or a win-loss. Whatever the case may be, rental real estate is one business risk worthy because of its inflationary advantage.
Before considering investing in real estate, you can consider the pros and cons. As it is said, “look before you leap”. Know that real estate is illiquid, it requires management and maintenance, it requires a great deal of financial and legal liability.
4. Think of Bonds (TIPS):
For fixed-rate bonds, inflation can be harmful but it is not so with Treasury Inflation-Protected Securities (TIPS), which provides a variable interest rate that is tied to the inflation rate.
The Treasury-Inflation Protected Securities in the US, are a notable option, there are pegged to the Consumer Price Index (CPI), a major index for tracking inflation (rise in prices of goods and services from a consumer standpoint).
With the rise of CPI, the value of TIPS investment also rises. Even the interest based on the base value (which also increases) rises. You can actually access these inflation-indexed bonds through the US Treasury or through a brokerage account.
For the newbies in the world of investing, it is not easier to start. Stocks can be good as long-term inflation hedges, and also short-term inflation hedges if you pick the right stocks.
To start up, one needs to open an account through a brokerage or trading platform select reviewed more than a dozen online brokers that offer zero commission trading to find the best option for new investors.
Remember as you invest the current inflation issues may be transitory, so one needs to be careful because of this drastic change which may hunt performance if inflation drops.
With diversification, you can be sure of your investment whether the Inflation is rising or stable.
6. Foreign Currencies:
Trading foreign currencies are one of the notable ways to benefit from Inflation because inflation not only reduces a currency’s purchasing power domestically but can also weaken it compared to other countries’ tenders.
Though a weakened currency can stimulate actively foreign buyers, holders of that currency are at an advantage when purchasing from a foreign nation.
Take for instance the Dollar experienced a relative weakening against the Pound, Canadian dollar, and Euro back in March 2021 through the first half of 2021, partially as a result of inflation. But when inflation rippled its way across the rest of the world, the US dollar strengthened once more.
Florence is a personal finance writer, who is passionate about helping others attain financial freedom. She covers topics from side hustles and debt payoff to investment and retirement.