Money no longer buys what it used to.
I remember back in the days when a stick of Hubba Bubba bubble gum used to cost 20 cents. Nowadays, it costs at least $2!
You already know what this is – the dreaded term inflation. It’s something that’s inevitable, and it erodes the purchasing power of your money over time.
In this post, I’m going to explain how investing your money is the best way to combat inflation, why I prefer to use stocks to do that, and what stock sectors tend to do well when it happens.
How You Can Beat Inflation
So how do you beat inflation? Or even worse, hyper-inflation (when prices rise at a very high rate – typically more than 50% a month)?
The simple answer is to put your money to good use through investments and allow it to grow, rather than sit in your bank account earning little to no interest.
This means that your money is already losing value when stored in a bank account – not good!
On the other hand, by simply being invested in things like property or the stock market, you’re already mitigating the effects of inflation because if done properly, your money should be growing more than inflation.
Over time, both stocks and property tend to outperform inflation in the long run, so you’re already ahead of the game. If you think about it, that’s pretty much what the banks are doing with your money anyway – using it to invest and generate profits while providing you with the benefit of keeping your money safe with them.
So you might as well do the same and keep those profits to yourself.
Why I Prefer To Combat Inflation With Stocks
There are many ways to combat inflation through your investments. Two of the most popular and well-known methods for doing that as mentioned already, is through the property and the stock market.
While I’m personally invested in both, when it comes to beating inflation, I much prefer stocks. Here’s why:
You’re Owning The Companies That Are Raising Their Prices
When you’re buying stocks, you’re purchasing a part of the companies that are raising their prices due to inflation.
In other words, you’re going to be indirectly benefiting from the profits being made by the companies charging higher prices for the goods and services you’d otherwise pay for anyway.
It’s a roundabout way of keeping your wealth up with inflation rates.
On the hand with property, you’re just betting that the price of your real estate in your particular geographic location is going to go up with inflation.
Stocks Offer A Greater Potential For Capital Gains
Adding on to the previous point, because many companies (especially those that provide everyday goods and services) serve the global market, they have a much greater potential to increase in value and therefore hedge and protect themselves against inflation.
This is because as global inflation rates rise, the monetary value for these companies’ goods and services will also increase, leading to increased profits and share prices.
On the other hand, investments like property are very much localized. So the capital gains may vary quite a lot.
There’s a Lot More Flexibility and Control When It Comes To Stocks
When you’re investing in stocks, you have a lot more control over when and how you want to cash out.
What this means is that you can more easily exit your stocks to cash out on your profits from stock prices rising due to inflation, as well as continue to take more positions once prices have dipped momentarily to profit again – which adds to the previous point of having greater potential for capital gains. Something you can’t easily do with property ie you can’t sell just the toilet or the kitchen when you need some cash.
What To Invest In During Inflation (The Best Stocks For Inflation)
So what stocks should you be investing in during inflation? Here are a few sectors and companies that have a history of outperforming inflation:
Consumer Staples
These are companies that provide everyday goods and services such as food, beverages, healthcare, and personal care products. People will continue to purchase them even if prices increase.
Utilities
Utility companies provide essential services such as electricity, gas, and water. These tend to be less volatile than other sectors and offer stable dividend payments. Like consumer staples, these are services people will continue to pay for despite inflation.
Real Estate Investment Trusts (REITs)
Real Estate Investment Trusts (REITs) are companies that own, operate, or finance income-producing real-estate such as office buildings, apartments, shopping centers, and warehouses.
Remember how we previously mentioned how one of the downsides of investing in property is being limited to one location? REITs are a great way to tap into the benefits of rising real estate prices while still being diversified across multiple locations and types of property.
Precious Metals
Gold, silver, and other precious metals have always been seen as a safe haven during times of economic uncertainty and inflation. This is because they have a long history of retaining their value and even increasing in price when other asset prices are falling. So investing in these can be a way to protect your wealth.
These are just a few examples – but there are many other sectors and companies that can do well during periods of inflation. The important thing is to do your research and due diligence before investing in anything.
How To Research Inflation-Beating Companies
Speaking of research and due diligence, now that you have an idea of which sectors have a history of outperforming in times of inflation, let’s help you get started with ensuring you’re identifying the best opportunities within each of those sectors.
To do that, I suggest:
- Downloading our free stock checklist, in which I share what I consider the 10 must-have stock criteria to screen out the financially strongest stocks
- Following the steps outlined to filter out the top 1-2% of stocks
- And looking out for any stocks in the resulting shortlist that are from any of the previously mentioned sectors
Don’t Let Inflation Affect You
The next time you hear news about incoming inflation, remember that you are not powerless. You can preserve the value of your money and even beat the effects of inflation by investing it instead of leaving it in the bank.
For example, by choosing stocks in companies that have a history of outperforming during times of inflation, researching those companies thoroughly, and diversifying your holdings, you can give yourself a fighting chance against rising prices.
And don’t forget – we have a free stock checklist available for download on our website that can help you with this process. So be sure to check it out and get started today.
Terry
