Levi's Research

While inflation can erode the purchasing power of your cash, there are strategies you can employ to make your money grow at a rate that outpaces inflation.

Inflation is the sustained increase in the general price level of goods and services in an economy over time. It reduces the purchasing power of money. For instance, if inflation is 2% this year, then $100 today will only buy you $98 worth of goods and services next year.  

Worst investments during inflation

Cash is generally considered one of the worst investments during inflation because its purchasing power declines as prices rise.  

Best investments during inflation

• Stocks represent ownership in a company. In theory, the value of a company’s stock should increase over time as the company grows its earnings. Inflation can cause companies to raise prices to offset their rising costs, which can lead to higher profits and stock prices. Stocks of companies that can raise prices more easily tend to perform better during inflation. These are often companies that sell consumer staples such as food, beverages, and household goods. Companies that benefit from rising interest rates, such as banks, can also be good performers during inflation.  
• Real estate can be a good hedge against inflation because the price of real estate tends to rise over time. Rents can also be raised to keep pace with inflation, providing a steady stream of income.  
• Commodities are tangible assets such as gold, oil, and agricultural products. The prices of commodities often rise during inflation as demand for them increases.  

How to invest during inflation

1. Diversify your portfolio Don’t put all your eggs in one basket. Instead, spread your investments across a variety of asset classes, such as stocks, bonds, and real estate. This will help to reduce your risk.  
2. Invest for the long term Inflation is a long-term phenomenon. The best way to weather inflation is to invest for the long term. This will give your investments time to grow and outpace inflation.  
3. Rebalance your portfolio regularly Over time, the asset allocation of your portfolio will drift out of balance. For example, if the stock market does well, your stock allocation will become too large. Rebalancing your portfolio involves selling some of your assets that have appreciated in value and buying more of the assets that have lagged. This will help to keep your portfolio on track to meet your investment goals.  

Inflation stocks

Stocks of companies that can raise prices Companies that sell consumer staples such as food, beverages, and household goods can raise prices more easily to offset their rising costs, which can lead to higher profits and stock prices.

Banks Banks benefit from rising interest rates, which can be a sign of inflation. When interest rates rise, banks can charge more interest on loans and pay less interest on deposits.  

Real estate investment trusts (REITs) REITs are companies that own and operate income-producing real estate. REITs can raise rents to keep pace with inflation, which can increase their earnings and stock prices.  

What to invest in during inflation

Consider a mix of the following asset classes

• Stocks of companies with strong pricing power
• Real estate
• Commodities
• TIPS (Treasury Inflation-Protected Securities)

Where to invest during inflation

There is no single best place to invest during inflation. The best place to invest will depend on your individual risk tolerance and investment goals. However, some general guidelines include:

• If you have a long time horizon and a high risk tolerance, you may want to invest more heavily in stocks and real estate.
• If you have a shorter time horizon or a lower risk tolerance, you may want to invest more heavily in bonds and cash.

Investing during inflation

Investing during inflation is essential to protect your purchasing power.  

Here are some steps you can take to invest during inflation:

1. Determine your investment goals and risk tolerance.
2. Develop an investment strategy.
3. Choose the right investments.
4. Rebalance your portfolio regularly.

How to make money during inflation

There are a few ways to make money during inflation:

• Invest in assets that tend to perform well during inflation, such as stocks, real estate, and commodities.
• Look for ways to increase your income. This could involve getting a raise, starting a side hustle, or investing in yourself through education or training.
• Reduce your expenses. This will help you to maintain your standard of living even if inflation eats away at your purchasing power.