Protecting And Growing Your Wealth In An Inflationary Environment

Oleh Admin 03 Agu, 2023 Posting Komentar

John Ulrich is president and CEO of Ulrich Investment Consultants .

Recently, few things have attracted as much attention as inflation. We hear it every day in the news, in podcasts, in magazines and even in friendly conversation, but what does this word really mean as an investor?

What is inflation?

The Federal Reserve defines inflation as "a general increase in the overall price level of goods and services in an economy." Inflation can be caused by many factors, such as increased demand, rising production costs, government policies, and even changes in the money supply. This increase will reduce the value of your money over time and jeopardize your long-term financial goals.

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One of the most common measures of inflation is the consumer price index. Calculated by the US Bureau of Labor Statistics, the CPI reflects changes over time in prices paid by urban consumers in eight broad groups, including food and beverages, housing, transportation, medical care and more.

Moderate inflation of 2 to 5% is generally accepted as a sign of a healthy and growing economy. Moderate inflation allows prices to adjust, encourages consumption and investment, and can be effectively controlled by central banks through monetary policy. However, inflation rates above 5% are often associated with economic imbalances or crises that can last for years.

How to protect your wallet from inflation

Inflation brings risks and opportunities to all types of investments. For example, fixed income investments can lose value if the rate of change in inflation exceeds the fixed interest rate offered. On the other hand, historical evidence shows that some commodities, such as precious metals, real estate, oil and natural gas, persist or appreciate during periods of inflation, helping to protect your portfolio.

Other strategies you can use to stay on track and reach your long-term financial goals include:

Diversify your portfolio

Spreading your investments across asset classes (stocks, bonds, cash, real assets, etc.), sectors and even countries can help reduce risk and reduce the volatility of your investments. Each asset class and industry is subject to its own risks. By diversifying across different asset classes and geographies, you help reduce the impact of these risks on your portfolio.

Although diversification is not a guarantee of increased profits or protection against losses, it can provide safety when an asset does not perform as well as desired.

Consider short-term government bonds

The Federal Reserve continues to raise interest rates to fight inflation. These increases shift the short end of the government bond yield curve and offer an attractive option compared to the interest you can earn in your bank account.

Short-term government bonds with maturities of three to nine months can easily be purchased at a premium, so you always have some money to pay off and can convert those funds into another mortgage, perhaps with a higher interest rate. when the Supplier's funds continue. Arise

Of course, this strategy involves risks, many of which should be considered before investing. Although government bonds are generally considered "risk-free" because of the US government's credit rating, there is a risk that you could incur losses if interest rates continue to rise and you are forced to liquidate a short-term government bond before maturity. Value It is important to understand that in order to obtain the face value of a security, you must maintain the maturity.

Invest in dividend stocks

Dividend shares are shares issued by companies that pay shareholders a percentage of the company's profits as dividends. Dividends are paid in cash and shares. Dividend-paying stocks can be useful for investors looking for steady cash flow or passive income, such as retirees. The return on these investments can be increased over time by reinvesting dividends and buying more shares of the same stock. This is a strategy known as a dividend reinvestment plan.

However, dividend stocks are not without risk. Although dividend stocks tend to correlate with value stocks and tend to be less volatile than non-dividend stocks, they are still stocks and fluctuate with the broader market. When looking at these stocks, it pays to evaluate the company's financials, dividend history and overall outlook.

Consider a personal loan

Since the global financial crisis, private loans have increasingly replaced traditional banks for many small business loans. As credit tightened and banks pulled out, private lenders filled the void. Personal loans are usually variable rate, meaning that if inflation rises and interest rates rise, so will the personal loan interest rate.

Personal loans have their own risks and should be considered a long-term investment. Although a personal loan may offer a higher rate of return, it is important to understand the risk of the loan you may be taking. Most debt funds have lock-ins, longer investment periods and higher minimum amounts.

Talk to a financial advisor

Consulting a financial advisor is an important step in overcoming financial challenges and making investment decisions. A financial advisor can bring the expertise and experience to provide personalized advice tailored to your financial goals and risk tolerance.

Financial advisors evaluate your portfolio, identify potential risks and recommend appropriate investment strategies to maximize your investments. By working closely with a financial advisor, you can gain valuable insights and make informed decisions to protect your investments against inflation.

A big part of successful inflation-protected portfolio management is awareness and adaptability. To proactively analyze and improve your portfolio, you must have a thorough understanding of the risks and opportunities of your investments. Remember that market and economic conditions change frequently. That's why it's important to evaluate your portfolio on a quarterly basis and make any necessary improvements to reach your financial goals. Staying on top of the latest trends and policy changes can help ensure you have the tools to help you achieve your goals.

The advisory service is provided by Ulrich Investment Consultants, an SEC-registered investment adviser. The information presented here is not investment, tax or financial advice. You should get advice from a licensed professional for your specific situation.

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