Whether it is planning for retirement towards the tail end of your career or looking to make investments as you start earning money at the start of your job, inflation is something one has to factor in for the long run. The reason being, your $100 now may not buy you the same value over the years — and that’s due to inflation.
In the United States, average inflation rates have been about 3% over the last couple of decades. Investors can beat inflation by targeting a return on investment of at least 4% to 6% per year.
Below are some investment options to consider as means by which you can beat inflation:
1) Real Estate - If you have the option to do so, rent your house. If you own your house, renting part of it out (or the entire home) can be an excellent hedge against inflation, especially if the location is good. Raise rents over time, and the increase in earnings is by itself a cushion against local inflation. If you do not own real estate, you can rent, consider high-yield REITs (real estate investment trusts). As an investment vehicle, REITs have done very well among all asset classes.
2) TIPS - Treasury Inflation-Protected Securities are a kind of U.S. government-backed bond to protect your investment from inflation. Introduced in 1997, TIPS have an adjustable principle, linked to the Consumer Price Index. As inflation rises (or falls), the amount of money that goes to the investor varies with it. When a TIPS matures, you are paid the adjusted principal or original principal, whichever is greater.
3) Gold - Gold has long been considered a traditional hedge against inflation. Many people have looked to gold, particularly when a country’s currency loses value. You may even look at gold ETFs as a passive investment. That said, gold has its downside too. When inflation rises, central banks tend to increase interest rates as part of monetary policy. Holding onto an asset like a gold coin or bar, that pays no yields, is not as valuable as holding onto an asset that does.
4) Annuities - Annuities are investment contracts offered by insurance companies to provide investors with an income stream for retirement. Annuities do provide tax-deferred investment growth, but you have to pay income taxes on the money when you withdraw it. That said, choose wisely. Some annuity products pay the investor a fixed monthly income that isn’t adjusted for inflation, but others have features designed to address inflation head-on.
5) Equities (Mutual Funds, Stocks, ETFs) - The stock markets are an easy go-to when it comes to thinking about investing. Putting money into equity-related products and reaping from the gains are a great way to supplement your income. But with stock markets, you must know when to put money in and then take it out. You may also want to pick dividend-paying stocks as this guarantees some additional income on a periodical basis.
Commenti