How to Invest during Inflation for Financial Freedom

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Investing during rising inflation comes with challenges for any investor. As inflation rises, it’s important to prepare for detours on your financial freedom journey. Your purchasing power may fall, but your profits don’t have to.

Expectations for 2023’s inflation forecast are that inflation will be decreasing. Estimates are said to “still be above a long-term baseline of 2.3%,” according to the Congressional Budget Office.

But what does that mean for your investment strategy?

If you focus on strengthening your financial plan, you can alleviate the fear and uncertainty that comes with a downturn in the stock market and rising inflation. 

Keep reading to learn how to invest during inflation.

• Lower cyclical unemployment
• Increased wages
• Increased spending
• Market downturn
• Price increases
• Higher demand
• Lower supply
• Layoffs
• Rising interest rates
• Increasing demand for goods and services
• Scarcity of materials for in-demand goods
• Lowered supply and increased wages
• Price hikes by companies during spending increases

Although several effects of inflation are immediate, those same effects can be long-term as well. 

Higher inflation today means you’re probably not saving as much for retirement. Does your financial plan assume interest rates of 2% or 3%? Does your financial plan still work during 10% or higher inflation rates?

Saving $500 per month during periods of 2% inflation may not be the same $500 per month savings during periods of 10% inflation. That $500 savings may be split between groceries, rent, mortgage payments, transportation costs, home repairs, or other expenses. That $500 savings may only really be $300 or $250 or even less as compared to before rising inflation. 

To better understand investments during inflation look at the causes of inflation. 

How Does Inflation Cause Stock Volatility?

Stock prices often go down during times of high inflation. With lower unemployment, high inflation, and demand for labor, the labor market demands an increase in wages. Increases in wages and material costs can lead to a market downturn. Struggling and failing businesses can add to a market downturn. 

According to MarketWatch, “rampant inflation and the Federal Reserve’s plan to sharply raise interest rates in response are acting as drags on the economy.” Slower economic growth due to inflation and lowering demand lead to drops in the S&P 500. 

How to Profit from Inflation Surges

Some businesses thrive during inflation. Lower overhead costs and high-profit margins, coupled with necessary expenses, create a recession-proof business model. Look to invest in these types of businesses during rising inflation. Try looking at sectors like energy and housing.

The Federal Reserve increasing the interest rate isn’t enough to battle inflation. Investors need to tip the scales in their favor. A few ways to profit from inflation are real estate investing, value stocks, and commodities.

What Are Inflation Hedge Investments?

In financial terms, a hedge is protection or defense against a loss. Diversification is one type of hedge. Inflation hedge investments protect your portfolio from rising inflation.

Inflation hedge investments can include: 

• Treasury Inflation-Protected Securities (TIPS)
• Stocks
• Real Estate
• Commodities

Don’t be afraid to add inflation hedges into a small percentage of your portfolio. Extra returns can compound over time into larger gains.

What Industries Tend to Do Well During Inflation Surges?

Think of what industry goods and services you use daily. Utilities are essential. Food is another daily essential. Work from home is changing the need for transportation to work. However, daily or weekly transport is still necessary for some suburban and rural areas.

Food, utilities, and basic expenses require income. Banks tend to do well during inflation. People still need to store or borrow money during times of high inflation. 

What Should You Look For in an Investment Opportunity During Inflation Surges?

• It’s inflation-proof
• It scales
• It’s a necessary expense

Look for investments in goods and services that people still purchase or use during times of moderate inflation to high inflation. Investments that have high economies of scale and are daily expenses for most people can help you profit during rising inflation. Look for these investments in industries that profit in times of high inflation as well as moderate inflation. 

Real Estate Investing During Inflation Surges

During times of rising inflation, rents and mortgages still need to be paid, even by those living on a fixed income. Mortgage rates may increase. If property management and mortgages deter you from real estate, invest in Real Estate Investment Trusts (REITs).

Don’t forget about crowdfunding or lending sites that allow you to invest in real estate as well. 

Learn more:

Value Stocks Investing During Inflation Surges

In addition to real estate, value stocks can be a solid inflation hedge. One example of a value stock is JPMorgan Chase. Banks still lend during rising inflation. Value stocks appear to be priced lower, considering earnings, sales, dividends, etc. Appearing at a lower price is what makes value stocks appealing to value investors. 

Commodities Investing During Inflation Surges

Like real estate and some value stocks, some commodities are essential even when the inflation rate is rising. Coffee is a good example of a commodity, as it’s one of the few luxuries most people can afford. Along with coffee, even during inflation, everyone still eats food. 

Our food system is dependent on wheat and corn. Homes need heat and vehicles need gas. Oil and natural gas are necessities during inflation for most. Electric vehicles increasing in popularity, however, means the utility sector shouldn’t be ignored.