In such an economic setting, the question on everyone’s mind invariably is: what asset classes should excess funds be directed to in order to increase income in contrast to continuously devaluing savings?
Beat inflation with the Right Investment Choices Today
As the world plummets to an unfathomable recession, inflation refuses to discontinue its appalling upward trajectory and hit an all-time high rate of 27.3% on a year-to-year basis in August 2022 as calculated by the Pakistan Bureau of Statistics (PBS).
Add to that the daily hike in petrol prices coupled with a commodity super cycle in the prevalent economy and you have the recipe for widespread panic. It is only natural to look for options that allow greater saving and diversification in portfolio that allows for means to increase income sources when faced with constantly shrinking purchasing power due to hyper-inflation. Conversations regarding saving options and investment opportunities become pertinent when the broader economy is characterized by sustained rising demand for higher-cost raw materials, manufactured materials, and depleting sources of energy. In such an economic setting, the question on everyone’s mind invariably is: what asset classes should excess funds be directed to in order to increase income in contrast to continuously devaluing savings?
1. The surest way to beat inflation undoubtedly is to invest in gold, with gold being an age-old hedge against financial calamities with a proven record of delivering inflation-beating returns. While the trusty yellow metal acts as a buffer against inflation for developed markets, it benefits the emerging markets as well by drawing a shield against currency depreciation for investors. However, it is important to remember that digital gold being offered by the vast majority of fintechs is unregulated and may prove to be risky. Physical gold in the shape of bars, coins or jewellery is good for consumption, while ETFs (Exchange Traded Funds) are ideal for those with an interest in trading in gold. Similarly, SGBS (Sovereign Gold Bonds are beneficial for buy-and-hold investors looking at longer term benefits owing to the extended time period of lock-in of these bonds.
2. Real estate has proven to do well during inflation since the value of property increases with time as well as lending landlords the ability to charge greater rent. This increases their income, simultaneously providing them a hedge against inflation. If one focuses beyond simple home ownership, REITs (Real Estate Investment Trusts) can also provide a channel for real estate investments in addition to mutual funds that invest in REITs at the back end. However, the demand for commercial real estate is somewhat undefined following the hybrid and remote work models that have been developed post covid, rendering mortgage rates for commercial office spaces questionable.
3. Lastly, another option is to invest in stocks to counter inflation and to simultaneously aim to diversify your portfolio of stocks. It is wise to steer clear of picking individual stocks since they require in-depth research and involve incredible risk. Index funds are a good starting point given that they allow you to participate in equity without any hassle since you do not need to choose between sectors, investment styles, etc. and they track a specific market index. In short, they are simple, affordable and entail considerably less risk.
These are just some of the ways end consumers can protect their hard-earned money from becoming devalued against the impact of inflation. It is prudent to look at these as well as other asset classes to retain consumer spending power in these turbulent economic times.