Finding Advantages For Investors During Inflation

Advantages for Investors

As the 1st quarter of 2022 rounds out, some concerns are developing on the horizon, primarily related to the potential of inflation. 

After months and years of historically low-interest rates, coming out of the pandemic has created an environment rich for inflation to begin to creep its head into the economy. 

In the U.S., the Federal Reserve raised interest rates with the plan of having multiple interest rate hikes over the coming year. The idea is that raising interest rates will combat creeping inflationary concerns, making cash more challenging to secure. 

The hope is that less money in the market will suppress inflation. 

Inflation As A Positive In The Real Estate Market

A benefit associated with inflation is that it spurs spending and investing at the expense of purchasing power. 

How that impacts the real estate market is that it causes more competition in the market for buyers as 1) loans are harder to secure, making buyers have to be more qualified, 2) weaker purchasing power helps drive prices upward, 3) stability in rentals as people are less inclined to move, making it ideal for the real estate investor. 

Lower inventory

As inflationary concerns continue, the hot seller’s market we’ve seen won’t be affected. Instead, people looking for safety will park their money into real estate, which offers security in the face of the rising costs of everyday items. 

Home values will continue to increase faster than inflation, making homeownership a priority. As such, this will create competition, further driving prices skyward. 

As home-buying becomes competitive, inventory concerns will follow, further driving prices of homes upward, far outpacing the rate of inflation. In some markets, like Samuel Kooris Brooklyn real estate agent works will see astronomical gains as competition drives the price of urban real estate continually upward. 

More stability in residential renters

The twin factors of lower inventory and higher inflation also have the added effect of creating a more stable renters market. Renters will remain in place longer as the cost associated with moving has increased along with the rate of inflation. As such, renters will stay in place longer, which has the effect of limited supply. 

As we’ve seen with residential home sales, lower inventory creates a more competitive market for landlords, further driving the price of rentals upward. As a result, real estate investment is a wise option for investors looking to park their money in a safe investment, especially to combat inflationary concerns. 

Investing During Inflationary Times

As rates increase and inflation grows, the investor needs to plan to diversify holdings and find safe areas to park their money. There are ways to mitigate the effects of inflation, and according to experts, some of the top places for investment when inflation is growing include;

  • TIPS
  • Short-Term Bonds
  • Real Estate
  • Commodities
  • Cryptocurrency

Investing In TIPS

TIPS is an acronym for Treasury Inflation-Protected Securities. They mirror inflation. So when inflation increases, so does the rate on the bond. Conversely, when rates plummet, so do the returns. 

Short-Term Bonds

Short-term bonds are similar to savings accounts and CDs. They are secure and accessible and opposed to long-term bonds that are impacted by inflation. Short-term bonds allow easy liquidation and, as such, are more resilient to the growth of inflation. 

Real Estate

In times of inflation, real estate typically does well as prices tend to rise. From rent price increases to the cost of homeownership, the appreciation that homeownership affords outpaces the inflation rate. 

But, of course, purchasing a home for living or investment opportunities requires the consent and guidance of a trusted professional like Sam Kooris real estate agent in Brooklyn. You can opt to buy a singular residence or work in a REIT (Real Estate Investment Trust) to lower your overall exposure, but it will also reduce your gains.  

Commodities

Prices of commodities such as oil, metals, and agricultural products increase in price to keep up with the demands of inflation. As such, these commodities can be an excellent investment to hedge against the cost of everyday items. 

There is a caveat to commodities investing, as the price of commodities is tied to supply and demand and can be more volatile than common stocks may be at any given time. 

Cryptocurrency

The limited supply of crypto offers it to be desirable, similar to gold, especially in times of inflation. Moreover, because of limited supply, demand increases its value, making cryptocurrencies, especially Bitcoin, to be a potentially strong hedge against inflation.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The Political Anthropologist.