Tactics for Navigating Investments in Inflationary Times

Inflation gradually eats away at your wealth, reducing what you can buy as prices go up. To counter this, your investment plan should aim to outperform inflation, which averages around 3% per year. Traditional cash options like CDs and savings accounts often don’t keep up. So, how can you plan to handle inflation effectively? Here’s some advice:

**Protecting Your Capital: Keeping Up With Inflation**

Sometimes, the goal is just to have part of your investments match the inflation rate to protect your capital. This way, you prevent your spending power from shrinking without taking on risky investments that could lead to big losses. Treasury-protected securities like TIPs and I-bonds are popular for this purpose. They help protect your wealth from being slowly eroded by inflation.

**Beating Inflation: Going for Higher Returns**

If you want to do more than just keep up and actually beat inflation, you’ll need a different strategy. Historically, stocks have been great for this over the long term. Dividend stocks, in particular, tend to give better returns than just capital gains. They can provide a regular income or be reinvested to grow your stock portfolio. This approach can help you beat inflation while building a collection of stocks likely to grow steadily over the years.

Commodities can also be effective against inflation because these physical assets are priced in dollars. As the dollar’s value drops, commodities usually become more expensive. Long-term assets like copper, oil, and cocoa are often good bets. Gold is another popular choice to hedge against inflation, and silver is also appealing due to its lower cost and tendency to move with gold.

**Building a Cash Reserve**

While cash alone won’t beat inflation, having a cash reserve for investment can be useful. It allows you to make the most of market downturns by buying more when prices are lower. Over time, this method helps you fight inflation, as prices are likely to go back up, increasing your portfolio’s value.