How to Invest During a Period of High Inflation

The average inflation rate in the USA last year was 4.7%, currently it is at a whopping 8.5%!. When inflation is a concern, many investors will shy away from the financial markets. The idea of losing money because of increased prices is a legitimate worry.

At the same time, we can’t precisely predict what will happen with inflation in the future and if our investment strategies should be altered as a result. As a result, many invest without understanding the underlying reasons or purchasing a property without consulting their real estate tax accountant. It puts them at a real disadvantage over those who know the power of protecting their funds from inflation.

In this article, I’ve jotted down five investing tips you can use today to help navigate through this ever-changing economic environment.

Buy land with a long-term payoff

Real estate is one asset class that tends to perform well during periods of high inflation. That’s because land never loses its value and can even appreciate over time if there is growth in the population or industry around it.

At the same time, people tend to move away from cities or get priced out if they live there, but they still need somewhere to live and work. If you’re looking for something with more risk but potentially higher returns, consider buying undeveloped land or raw land that hasn’t been developed yet.

It might take years before it starts paying off its investment, but real estate tends to outperform other asset classes like stocks and bonds in the long run. You should also consider hiring a real estate tax accountant to take advantage of various tax breaks like depreciation deductions.

Shorten investment maturities where possible

The longer your investment term, the more likely you will be affected by inflation over time. Thus, when investing in stocks and high-yield bonds, try to shorten their maturities as much as possible, so they can be sold quickly if necessary.

This way, if you need to liquidate them quickly due to unexpected expenses or rising interest rates, you won’t lose much on those investments before they mature. 

Invest in cash flow properties

Cash flow properties or REITs (real estate investment trust) is another route for venture capitalists who want a steady income from their portfolios. You can buy rental properties or commercial estates in your area and then rent them out at a profit.

This strategy focuses on cash flow and not appreciation and provides steady income, allowing you to ride out any economic downturns while still earning bucks from your investments. If you’re interested in this strategy, it is best to get a firm grasp of how it works before diving into it head-first. Apart from this, the aid of a specialized accountant for real estate investors will help you design a strategic tax plan for properties you want to finance.

Invest in High-yield bonds

Bonds are considered “safe” investments because their value rises when interest rates fall (and vice versa). But not all bonds are equal and bring forth the same results. High-yield or junk bonds are a sustainable technique to hedge against inflation and acquire higher interest rates than other securities or investments. They will typically have a stated rate of return and an annual percentage yield that accounts for the effect of compounding interest over time.

One main drawback is they count as high-risk buys because the government doesn’t back them and could default on their payments. Given this, it’s crucial to choose bonds that protect your principal and provide a good return even if interest rates rise.

Explore international and emerging markets

Creating statements like “Stocks are bad because of inflation” is just as foolish as saying “Buy stocks because of inflation.” What you want to do is find stocks that are worth buying even though you expect inflation to be higher in the future. Dipping your toes into international market stocks puts you forward to companies located outside the United States. 

Investors should consider subsidizing emerging markets as they had often outperformed developed nations and yielded higher returns — especially when inflation picked up.