If a country runs a record deficit, many new investor concern is mitigating the threat of inflation in the portfolio. If the country starts to print more and more money, then that is a signal that the money will be less valuable soon.
There is no exact tools or ways to save your portfolio during inflation. Yet, you can get the help of a financial advisor to lessen your possible loss. Proper use of their help will significantly save your capital.
Besides, you may also consider these things to mitigate the threat.
Avoid Long Term Bonds’ High Concentration
Bonds get the biggest effect on inflation rates. Inflation rates can easily destroy a bond investors’ network as easy as the moth that ruins a wool sweater.
That is because most of the bonds get fixed coupon rates. That rate stays, it does not increase. For instance, an investor buys a 30-year bond with a 4% interest rate. Yet, inflation goes as high as 125.
This investor loses more and more purchasing power as the year goes by even if he feels safe with his bond investment. Moreover, many bond investors notice this when it is too late.
Get the Investment That Increase Cash Flow
Increasing cost means increasing the price of McDonald’s products, insurance premiums, and apartment rents. These three business promises built-in protection from a rise in the inflation rates. Thus, owning property or stock that pays out dividends can be a big help for you.
Their cash flow will at least help you keep your purchasing power to not going down drastically. Owning investments with pricing power, help you survive bouts of the high inflation without getting hurt that bad.
Commodities with the Power to Move Independently from Currencies
Once you invest in commodities (like crude, mines of gold, silver, or other assets traded like commodities) you do not need to worry about inflation rates as other investors. The reason for that is people will keep purchasing commodities (wheat or gold) regardless of the currency level.
