6 Ways to Prepare for the Inflationary Era

Inflation is coming, whether we like it or not. Inflation has been a persistent threat to the global economy for the past several years, and it’s only going to become more pronounced in the future. In order to protect yourself and your assets, you’ll want to get prepared now. Here are six ways you can start doing that.

Diversification

One of the best ways to protect yourself against inflation is by diversifying your assets. You can’t completely immunize yourself from inflation, but you can certainly reduce your exposure to its effects.

The best place to start is with your investment portfolio. Stock market investments are particularly susceptible to inflation because they’re driven by consumer demand. If future generations of retirees start demanding more and more, the government will have no choice but to raise taxes to fund the growing demand.

A better approach would be to protect your assets with things that don’t require much maintenance and aren’t subject to stock market fluctuations, like physical gold and silver. You can also invest in assets that provide necessary goods and services, like food and shelter.

Deflationary Asset Allocation

A key part of any investment strategy is to have a good allocation of assets. This means that you should have a variety of different investment options, including stocks, bonds, real estate, and commodities.

A common misconception is that investing exclusively in stocks leads to massive, inflation-adjusted returns. This is not the case. In fact, if you only invest in stocks you are likely to end up with a portfolio that is badly underweight in assets that can maintain their purchasing power over time, like gold and real estate.

Short-term investment

One of the best ways to prepare for inflation is to avoid keeping your money in savings accounts. In a rising inflation environment, savings accounts will lose value much more quickly than the average person realizes.

A better approach would be to keep your savings in a money market fund or some other short-term investment. The reason is that short-term investments are very liquid, meaning you can quickly turn them into cash. This liquidity helps mitigate inflation’s effect on your savings by decreasing the amount of time it takes to get your money back.

Gold as an inflation hedge

Another way to protect against inflation is to invest in gold. Gold is a deflationary asset, which means that its purchasing power will decrease over time due to its scarcity and the fact that it’s a good conductor of electricity.

Blockchain

The technology behind cryptocurrencies is starting to see some real-world use cases. One of these is in tracking the provenance of assets.

Artificial Intelligence and Quantification

Artificial intelligence and quantification are going to be increasingly important in the coming years. This is especially true if we start to experience an inflationary environment.

Bottom line

As we’ve covered, there are a number of ways to protect yourself and your assets from inflation. The most important one is to diversify your assets. You also need to make sure that you have a good mix of assets, including stocks, bonds, real estate, and commodities.

A short-term investment strategy that is kept in cash or money market funds can help mitigate the effects of inflation on your savings. Gold is also a good hedge against inflation.

Lastly, you should quantitatively analyze inflation risks and hedge against them by investing in assets that hedge against inflation such as gold or diamonds.