In elementary terms, inflation denotes when prices of goods and services spike. This may be caused by the printing of more money with a decrease in value of that money leading to the price increases. This is often accompanied by stagnancy in incomes that people get. This results in incomes failing to keep up with the ever-increasing costs of goods and services. This strips consumers of their buying power and leads to deteriorating standards of living. Currently, the nation is going through a period of increasing inflation. As at the end of April inflation was now at approximately 76% and is anticipated to continue increasing. So oft time the consumer is the major casualty of increasing inflation and even businesses alike. I’m here to discuss some principles to know with respect to making investments during such times.
What Inflation Entails – The Case For Investment
During such times understand that any possessions you have that are denominated in the ailing currency (in our case the RTGS$) are vulnerable. Thus the foremost approach is to turn all such possessions into assets. The easiest one being to convert the RTGS$ savings you have into forex – that provides a cushion for your savings. I can’t really say the same for incomes though since most people receive them as RTGS$. This means that if they try to convert to forex before doing purchases they might lose precious amounts of money due to exchange rates and transaction charges. It’s wiser to make all required purchases as soon as possible if your income is in RTGS$ to avoid loss in value. Never spend long periods with RTGS$ denominated money because it actually loses value due to inflation. The other assets to acquire as a cushion against rising inflation are what I’m delving into now. Ideally, people think making investments now is a no-go area, well, not necessarily. Of course, there’s always risk involved but if well executed some of these things can pay off.
Turning Fixed Rate Debts Into Assets
The principle here is to get huge amounts of debt that’s repayable through fixed rates. Once you get that money you use it to purchase assets that generate quick revenue. The thrust will be to pay back the money as soon as possible and get the debt off your back. Housing, farms and mines (e.g. gold) can be excellent assets to acquire – things that appreciate value over time. This sounds workable in principle but it involves a lot of risks and meticulous execution but it’s worth a try.
Commodities or Natural Resource-Based Businesses
Commodities like agricultural produce (popular grain) and natural resources such as minerals (gold, for instance) can be great investments in times of inflation. You can get a hold of such commodities and keep them for resale later or when they are now in short supply or are fetching higher prices. You can also, funds permitting, invest in businesses involved in the production of such commodities. These commodities’ value rises in proportion to the increase in inflation meaning your money’s worth will be preserved. One of those commodities is the fuel which is always an in-demand commodity – that can be an investment area worth your while. Actually, you’ll notice that most in-demand commodities actually get priced more as inflation spikes. The efficacy of commodities as buffers against rising inflation is so well-documented that they are considered an insurance policy.
Acquiring a property can be strategic in times of rising inflation. The principle of rent-seeking suggests that prices will always be adjusted to prevailing circumstances and therefore keep step with inflation. This means you can actually recover your initial investment after some time (either by selling off or using it for rental services). This provides you with a cover to keep up with the rising costs of goods and services. This is because you can always charge your buying price or rental rates in relation to prevailing inflation rates. Compared to other ways, real estate is characterised by lower risk.
So the investment is one of the most effective ways of hedging yourself against inflation. So if you have money that you can invest try out some of these strategies and see how you fare. Remember there is always risk involved so being thorough and meticulous is imperative.