Inflation affects all of us, regardless of where we live in this world. As consumers, inflation in the US also affects us. Unfortunately, inflation is ongoing.
As a matter of fact, none of us can actually escape inflation unless we’re living free of cost or have no need for money or don’t need to buy things for our living.
Most of us would already know that inflation sends the cost of everything rising higher and higher. In fact, every month, we might be paying a little more for our groceries and other household essentials compared to previous months.
In fact, inflation can also wipe out all our savings if we’re not careful. I mean, inflation could rise so high that all the money in your bank account or investments now would be worth nothing or even have much lesser value and buying power after a few years.
Therefore, let’s understand the inflation in the USA.
Inflation Rates in the USA
In July 2022, the inflation rate in the USA stood at a whopping 8.5 per cent. This might be a bit confusing to understand. Therefore, I will explain further. Basically, inflation sends up the cost of everything. It affects fuel prices, which in turn spills onto higher prices for food and other essentials.
Inflation also causes the rates of housing to increase. This means a house that costs, for example, a million Dollars, will become pricey by, say, 10 per cent.
Once the cost of living goes up, your savings come down- automatically. The same groceries that you paid $1,000 for last month might cost you $1,090 this month. This means you will have $90 lesser for savings and for other expenses.
Understandably, during some months, you might get lucky and spend a little lower. But that happens due to lesser demand and not because of falling inflation. Overall, inflation affects us every day and everything that we do with our money including income, spending, savings and investments.
If we don’t save and invest enough money right now, we might not have enough money for retirement or even unemployment. There’re several factors that affect inflation. I will explain this briefly.
Factors that Cause Inflation
In the US, there’re three main causes of inflation. Thankfully, the US economy is very strong, and hence, factors that affect certain other countries don’t cause inflation in the US.
The factors that are responsible for inflation in the USA include:
- Demand and Supply: When there’s a high demand for certain goods or commodities or products and services, prices go up. This happens when suppliers aren’t able to fulfil the market demand, and there’s a shortage of those goods or services. A classic example was seen during the Covid-19 pandemic when the prices of most essentials soared tremendously due to higher demand and less supply, as companies closed due to pandemic-related restrictions.
- Surplus Money: When people have surplus money to spend, it's obvious they will generate a huge demand for everything. This kind of inflation works in two ways. In a market such as the US, where most prices aren’t regulated, sellers are free to charge any price for their goods. They do so because they are aware that people will spend more to buy or have something. Furthermore, a shortage of supplies also sends prices up since producers can’t match the demand.
- Policies and Regulations: Often, government policies, including support of certain countries, sending troops, devaluation of the US Dollar against certain foreign currencies, trade relations or ban of exports or imports from a specific country or region, can also cause inflation. A good example is the 2022 Ukraine war, that’s causing irregular supplies of fuel and other essentials as well as the US-supported supplies of weapons to the Ukrainians.
While these are the three main reasons that cause inflation in the US, there could be other smaller ones too that lead to price rises. Overall, inflation only leads to an increase in prices and makes your living a bit costlier than before.
Generally, inflation also affects the Time Value of Money (TVM) or the purchasing power of your income and spending, as well as savings and investments.
I will explain, in brief, what TVM is and why you should also consider that when thinking about the 10 best investments for inflation.
Understanding the Time Value of Money
In simple words, the Time Value of Money or TVM is also a method of measuring inflation and its effects on your money.
However, this calculation doesn’t really consider inflation as the yardstick. Instead, it considers a constant increase of only 4.5 per cent in prices every 12 months.
For example, if you have $100, you can buy groceries worth this amount this month. However, after 12 months, the same groceries will cost you $104.50 or even more.
That’s because the prices of your groceries have increased by 4.5 per cent over a year, while your $100 is worth only $95.50 after 12 months.
This means you’re spending 4.5 per cent more money after a year on the same goods. This calculation is good only if the inflation is below or about 4.5 per cent a year.
In most cases, the inflation is much more than five per cent per year in the US.
In other words, your savings or every $1,000 will have a buying power of only $955.50 after a year. And this value further goes down by another 4.5 per cent after another 12 months.
What Financial Experts Recommend?
The above descriptions of inflation and TVM prove that all the money you save will lose its value over a period of time. This means the buying power or purchasing power of your money will get lesser and lesser as the years pass.
Therefore, good financial experts recommend that you should save and invest in plans and instruments that will earn you more money than the rate of inflation.
For example, if next year, the inflation is 8.5 per cent, your investments should be able to earn at least 12 per cent. That’s because, from the 12 per cent that your investments earn, a whopping 8.5 per cent will go only towards covering inflation.
This means your investments will have earned you only 3.5 per cent in terms of income.
Though the 3.5 per cent seems lower at this moment, it grows up to a larger amount through the principle of compounding. This means the $1,000 you invest today becomes $1,120 in the next year. And for the next 12 months, you will get 12 per cent on the greater amount, $1,120 and so on.
This power of compounding helps us to protect our money against inflation. At the same time, this is possible only if we select the best instruments or assets for investments.
If you’re confused over which are the best assets to invest your money for inflation, continue reading. I will be listing 10 such superb investments that can protect your money against inflation and TVM.
10 Best Investments for Inflation
Therefore, let’s look at these 10 best investments for inflation. Before rushing to invest, I strongly recommend that you learn about these investment options.
Or, speak to a skilled and experienced financial advisor or financial consultant about your need to protect your money against inflation since they would know the current trends.
Research proves that these 10 best investments for inflation can actually pay you higher returns than expected.
In recent years, there’s been a lot of talk about cryptocurrencies. Obviously, this talk and interest is largely due to Bitcoin, the single-largest crypto in the world and Ethereum, which trails close behind.
The US allows its citizens to invest in cryptos such as Bitcoin, and there’re superb crypto exchanges based in the US, such as Coinbase, to name one.
You can start investing small amounts of money in Bitcoin or cryptos. That’s because Bitcoin is made up of 100 million fragments known as Satoshi. At the time of writing this article, a single Bitcoin was valued at about $8,000.
This means you can start buying a few Satoshi for as little as $80 or even $800 and own a Bitcoin over some time. Prices of Bitcoin are always on the rise and could protect your money against inflation.
Also Read: A Step-By-Step Guide to Buy a Bitcoin.
Also Read: How to Earn a Free Bitcoin Instantly?
2. Non-Fungible Tokens
Non-Fungible Tokens, or NFTs, are the latest trends in investing. In fact, they can provide a superb hedge or protection against inflation if you know how to buy them.
Read a few good tutorials on NFTs and their trade to understand how to invest in them and make some money over the long term. You can buy, sell or trade-in Non-Fungible Tokens online and over a single app on your mobile.
In simple words, an NFT is the digital representation of some music, art, asset or real estate. The current value of these assets is ‘tokenized’ or made into a digital form.
When you buy a single NFT, you’re actually investing money in that particular asset, which could also be some invention. As the price of art or music or real estate, or any other asset, goes up, the value of your investments in NFTs also rises. Over the years, NFTs can provide rich returns.
There’s no broad classification of what antiques really mean. It could be anything such as a rare sports card from the 1900s or furniture, a camera model that’s gone defunct and isn’t available easily or even rare postage stamps.
Basically, these antiques are prized by collectors. And usually, these collectors are very rich and wish to add them to their collections. Hence, they pay a high price.
One of the best parts of investing in antiques is the fact that their value rises over the years. If you’ve bought a genuine antique and collectable today for $1,000, you can surely expect to get a much higher value after 10 years or more.
These antiques are bought by shops and can be sold online or even auctioned if the value is very high. Any investment in good antiques never fails. Instead, it provides amazing returns that could help protect your money against inflation.
REIT means Real Estate Investment Trust. It is one of the best ways to make money in real estate. These trusts are similar to companies or corporations but smaller in size.
When you invest in REITs, you’re actually investing money in real estate. But you don’t really own real estates such as land, house, apartment, office, industrial premises or farms and warehouses.
Instead, the money, along with that of other investors, is collectively used for real estate. You become a part owner of the real estate.
We’re all aware that real estate prices are always on the rise. This means the value of your investments in REITs is always going upward. In fact, inflation in housing prices and real estate prices directly means your investments in REIT are worth a higher value.
You can make a lot of money in the long run by staying invested in REITs of different kinds. There’re also Mutual Funds based on REITs that you could consider to protect your money against inflation.
5. Mutual Funds
Speaking of Mutual Funds, these are one of the safest bets for anyone. There’re different kinds of Mutual Funds. Some invest in stocks of different companies, others in certain types of debts and bonds and others in foreign markets.
Then we also have Mutual Funds linked to commodities such as gold and petroleum and specific industries.
If you opt for Mutual Funds, financial advisors generally recommend a 60-40 mix. This means you should ideally have 60 per cent equity or stocks-based Mutual Funds, and the remaining 40 per cent should be from debts, bonds and other instruments.
This mix can give you the right kind of returns over a longer run. While stocks-based Mutual Funds can swing in value according to the ups and downs of the equity markets, those based on debt and other assets show steady growth. This mix allows you to get the best from all sorts of investments.
For those who know about stocks, investing in the equities market is the best option. In the US, you can buy or sell stocks through a stockbroker.
It’s very easy to open a stockbroking account with any of the large banks or financial companies in the US. They require minimal documentation.
You could also download any of the best apps for investing in stock markets, such as Acorns or Robinhood. In fact, you can start investing in stocks for as low as $5 through these apps.
Stock markets always swing up and down as prices of various company stocks are affected by policies, demand, supply, happenings in the USA and abroad, technological advances and many more reasons.
However, stock markets always rise, despite occasional short or even long slumps. As a result, the value of your stocks rises despite falls, and you can make a lot of money by investing in these equities.
However, I strongly suggest that you study the stock market and its workings before going to buy, sell or trade on stocks.
US Treasury Bonds, gold bonds and corporate debt bonds are perhaps the best in this category of investments for inflation. As a matter of fact, there’re quite a few bonds in the US which are actually custom-made to withstand inflation and its negative impact.
You can get a lot of information about such bonds online from the websites of top banks and financial companies. Or, ask your financial advisor to select a few where you can invest.
Generally, bonds come with a time span. This means you will get an assured sum of money upon maturity of the bond. If you play it well, you can build a superb portfolio of bonds that mature over a period of time and give you superb returns that ride over the inflation at the time.
Furthermore, bonds are also one of the safest ways to invest. A lot of Americans buy US Treasury Bonds for their future.
It is one of the legit ways to double your money fast. The commodities market functions round the clock. At any point of time during the 24-hour day, you can see commodities such as crude, metals including lead and food grains, among others, being bought or sold.
At the same time, the commodities market is also very volatile. In this sense, even the slightest incident or happening in the world can cause prices to soar high or dip low.
This gives you a wonderful advantage. You can trade in commodities to make a lot of money and hedge against inflation. Or, you can simply invest in certain commodities and sell them at a later date to earn higher profits.
Similar to stock markets, buying, selling and trading in commodities also requires some knowledge of the market. You can enter the commodities market with the help of a broker that can guide an investment or read news and other resources to invest.
9. Exchange Traded Funds
Exchange Traded Funds are somewhat similar to Mutual Funds. They are made of different financial assets such as stocks, bonds, debt, commodities and others. The only difference is that Mutual Funds aren’t traded daily on the stock market.
Instead, ETFs, as they’re known, are traded daily on the stock market. This causes their price to go up or down. However, certain ETFs aren’t affected by these swings, such as debt-based or REIT-based ones.
There’re hundreds of ETFs listed on the US securities market. It is possible to view their list on NASDAQ or through the websites of different financial organizations that create these ETFs.
A good portfolio of diverse ETFs could fetch you the desirable returns and hedge you completely against inflation if you play it well. In fact, a lot of American investors focus solely on ETFs to build a portfolio.
There’s a strong reason why I list gold as last on my list of 10 best investments for inflation. That’s because investing in gold is very safe, but it might not provide you with much returns unless you’re going to stay invested for a long time.
However, investing in gold doesn’t necessarily mean you buy bars of this precious metal or jewellery, though it's also an option. Instead, you can invest in gold-based ETS and Mutual Funds or even NFTs in some cases.
The demand for gold doesn’t always rise. However, this precious metal does see an increase in price during certain seasons. And overall, gold prices also rise when inflation goes high.
The difference between the money you invest and the price of gold at the time you wish to sell makes all the difference. There’re claims that investors in gold have made as much as 25 per cent profits over a span of five years.
Also read: Best Places to Sell Gold for Cash
Considering Cumulative Deposits & Retirement Plans
There’s a lot of talk about investing in Cumulative Deposits at banks and credit unions, among others, to beat inflation. However, CDs, as such, aren’t any hedge against inflation. Therefore, you would have to select a CD investment carefully.
That being said, there’re quite a few CD plans from banks that do offer a high-interest rate. These could help you beat inflation to some extent. In fact, you could include one or more CDs in your portfolio.
In my opinion, a CD doesn’t qualify as an investment. It is nothing more than an agreement between you and the bank or credit union or other financial institution.
Under the terms of this agreement, you will keep some money with the bank or financial institution. In return, the bank, credit union or financial institution agrees to pay you a fixed interest on cumulative and compounding terms.
The same holds true for retirement plans and annuities. These two don’t really qualify as investments. Instead, they’re securities that you buy for your future because they provide some income during your golden years.
In some cases, returns from retirement plans could barely be enough to cover living costs after a few years or when you retire.
Admittedly, these 10 best investment ideas for inflation might involve some level of risk. However, proper systems and mechanisms are in place to ensure you don’t lose your investments. Over the years, it has been proven that these 10 ways to invest for inflation actually can help you get superb returns.
Samuel Mitchell is a financial analyst with expertise in investment research and risk assessment. With a background in finance and advanced certifications, he delivers accurate and concise financial analysis. Samuel's writing style is precise and data-driven, providing actionable insights for readers. Explore the world of finance with him and make informed investment decisions.