How to beat inflation in 2022?

Inflation has become a wonder for many investors. If you don’t put your money where you can beat inflation. Your money is consistently depreciating its value due to increasing prices of goods and everyday products.

The money you have saved for retirement is not enough to support your current lifestyle. Many investors don’t know how to invest in the stock market or other financial tools. They believe that they have to be an expert in finance and economics to be successful. It is not true. There are many tools and resources available online that can help you learn.

What is inflation and how does it affect you?

Inflation is the rate at which the prices of goods and services are rising. Inflation is a slow but persistent increase in the general price level. When we look at inflation, it’s usually in reference to a country’s currency.

We can say that inflation is a continuous increase in the price level or the general cost of living. In most countries, inflation is usually measured by changes in the CPI (Consumer Price Index). The main aim of this rise in prices is to diminish the purchasing power of money. 

An inflation rate of 2% means that prices on average will be 2% higher than they were last year. If you are a saver, this is bad news. If you are a borrower, it is good news. If inflation rises above 2%, then the interest rate on your savings will be less than the rate of inflation. 

This rise in prices makes it more difficult to pay off debts with another currency since it takes more units of that currency to do so. Inflation also has an effect on bond yields, as well as other interest rates such as credit card interest rates, and loan interest rates.

How to beat inflation?

You can beat inflation by buying income-producing assets and investments that are growing in value. There are many ways to invest your money, but not all of the investments will protect against inflation. 

The safest way to grow money, while protecting against inflation is through fixed-income investments such as bonds and CDs. However, if you have a longer time horizon than most people, you can take on more risks. This includes stocks and real estate. 

One of the most important things to consider before investing is to be sure that you are earning enough money that you have extra money to make investments.

There are some investments that are best to beat inflation. The truth is that most traditional investments don’t really do well against inflation. Real estate, stocks, and bonds all suffer from inflation. But there are four investments that can beat inflation, or at least keep up with It.

Gold is a great investment to beat inflation because of its constant value over time. The only problem with gold is that it’s not easy to buy and sell, and doesn’t have the liquidity of other investments. However, if you’re looking for a way to protect your assets from future inflation.

Investment In Gold

Gold is considered to be the best investment for many investors due to the interest of people in this metal. This rare metal is is considered precious for centuries. 

According to Forbes gold is upon an average of 9.4% from 2 decades ranging from 2001 to 2021.

Gold can be liquidated easily like stocks and other funds. Gold is a great investment for the long term and also for emergency liquidation.

Many people buy jewelry made of gold but this is not a good option because if you buy jewelry 15% of the total value of jewelry will be cut as polish and jewelry profit which means you are paying Rs15 for Rs10 gold. The best way is to buy biscuits or bars of gold or invest through the mercantile exchange.

Investment in stocks

Investing in stocks is a popular option for many young investors cause it has higher risk and higher rewards. Investing in stocks is not as difficult as it seems to be. Now, there are many apps that let you invest in stocks easily without getting into too much hassle. Like, as Robinhood for S&P 500 or Ktrade for PSX.

According to Business Recorder, the growth rate of KSE-100 was 14% during the last 30 years. 

KSE-100 index is a Pakistan Stock exchange index of 100 companies that have the highest free-float market capitalization.

This data shows that if you had invested Rs1000 in KSE-100 that would be Rs47000 by 2021. That would be about 47% of the gain. The data also shows that the portfolio would have grown on average by 14%. In dollar terms, PSX goffered almost a return ratio of 46%.

If you are a young person in your 20s and have just started to save money and want to invest your money somewhere you can beat inflation. Stocks are the best investment for you. Stocks can be tricky but if you do your homework you will get good rewards. Check out my article on “How to start investing in your 20’s?“.

Investing in mutual funds

Mutual funds are also one of the popular investment tool. Companies collect money from investors and invest in stocks, bonds,e.t.c and give back returns to the investors.

Mutual funds have much less risk because you are giving your money to money managers whose job is to invest your money where they can see good returns. They have professional analysts who continuously watch the market and predict its behavior.

Investing in mutual funds enables you to get the advantage of investing in any securities. It allows you to diversify your portfolio. 

The return on mutual funds varies. You might get a 1% return on your investment. But mutual funds are a good option if you are in your 40s or 50s. Mutual funds are considered less risky and safe.

Investing in real estate

Real estate is one of the most loved investments worldwide. Everyone wants to own a house and the real estate market is booming and it’s not showing any signs of slowing down. If you’re wondering what kind of investments you can make to prepare for your financial future, consider buying a home or investing in real estate. 

The best of owning real estate is that you can generate passive income with rental properties which not helps a hedge against inflation but also expands your stream of income

The biggest problem with real estate is that you need a handsome amount of money to be eligible to get started. If you don’t have enough money no problem you can buy REITs

Real Estate Investment Trust or REIT is a mutual fund that is focused on real estate investment. REITs allow the investor to invest in different real estate properties just like mutual funds of stocks. REITs have competitive returns and high dividend income. They are the best way to diversify and help reduce the risk of the portfolio.

Conclusion

Investing can be a headache sometimes but if you do it with passion you really like to enjoy it. The main purpose of your investment is to beat inflation. If you park your money in one asset you won’t get the results you need to diversify your investments and try to generate more income streams. The problem with many people is that they complain about the increase in consumer prices but don’t create more income streams which keeps them poor.

“The biggest risk of all is not taking one.“

Mellody Hobson

Note: This is not financial advice this article is only for information purposes.