For quite some time, investors have been dreaded by the effects of inflation on their investments. Inflation is one of the biggest threats to the health of your investment portfolio. It is like cancer which keeps eating your earned profits silently and one day only the clinical placement is visible once the damage has been done. People make investments to make sure they provide well for their family, realize their goals and secure their retirement but forget to inflation-proof them.
Here are top 5 investment instruments which are inflation-proof and are must-have’s in your investment portfolio;
To top the list is Gold. Gold is the best anti-inflation asset that works wonders with inflation. Inflation is basically the rise in the price of commodities that happens per year. Gold is one commodity which happens to be favorable to investors if its price rises.
Also, rather than investing in physical gold, you must consider investing in gold shares and bonds which provide more cushioning against inflation. In fact, digital gold is much easier to handle as it does not require any physical space to be stored. Also, if need be you can get your digital gold converted to physical gold and get delivered at your doorstep (Piggy digital gold).
Since gold is a highly liquid commodity, it will help you with your liquidity needs as it can be easily and quickly financialized in any form you want. These characteristics majorly contribute towards gold to be the topmost priority as an inflation commodity.
Investing in commodities is has not gained much popularity in India yet. Commodities like Oil, electricity, natural gas, precious metals, etc be considered for investing in to beat inflation. As and when inflation increases, the price of these commodities will increase which will, in turn, benefit your portfolio.
These commodities generally belong to the FMCG category which will always be required. Hence you can benefit from the rising prices. Invest in the stocks of such companies that are directly in the FMCG industry or are vendors to them.
- Diversified portfolio in stocks and bonds
If you attain an ideal diversification of 60 is to 40 in your investments then you can surely beat diversification. A well-diversified portfolio in stocks and bonds helps balance out the inflation impact and bonds are much stable as compared to stocks. The stocks will help you earn more profits and bonds will help in balancing.
Start investing through SIP i.e. systematic investment plan which allows you to invest gradually and regularly with a small amount to build up a portfolio that not only builds up a corpus for you but also hedges against inflation.
- Real estate and REITs
Investing in Real Estate has been a traditional move. Especially in India, real estate has been amongst some of the earliest forms of investment. You can consider investing directly in real estate to beat inflation or you can go for the newly introduced concept of REITs which is Real estate Investment trust. REITs allow you to be a part of a commercial real estate or hold some stock in that estate. You can invest as per the money availability you have and own a certain number of shares in that commercial property.
These can be commercial buildings, hotels, office spaces, shopping centers, hospitals, malls, etc.
- S&P 500
S&P 500 is one of the best options for investment to deal with growing inflation. As the stats go high, S&P 500 funds have shown excellent and inflation breaking performance. If you cannot spare much time looking out for the choicest funds under the category you can simply go for funds that mirror them. S&P 500 funds have proven to be 70% successful in beating inflation.
TIPS are Treasury Inflation-Protected Securities which are mutual fund schemes especially built to beat inflation. These are launched under the name of Capital Index Bonds (CIB) and fall under the category of Inflation Indexed Bonds. These schemes are linked to the Consumer Price Index. Hence when there is a rise in inflation the principal of these bonds rises and decreases with deflation.
Gilt funds also fall under the same category which hedges against inflation and helps both government and investors manage the impact of inflation on a positive note.
You can manage inflation by investing in all or any of these options but the real effort lies in maintaining a portfolio that is both profit-earning and robust.