Everything You Need to Know About Investing in an Inflationary Environment

The U.S Federal Reserve targets a 2% average inflation rate spread over time, most consistent with its dual mandate to promote price stability and maximum employment. Right now, though, we are seeing one of the highest inflationary environments to date with record-level highs of almost 8%. 

Unlike traditional investments, alternative investments can actually serve as a hedge against inflation. Here are a few key ways to protect your portfolio during inflationary environments. 

Diversifying your portfolio

One of the most important things to protect your portfolio from inflation is diversifying your investments. Diversification means investing in various asset classes, which helps reduce your risk if one type performs poorly. Rather than betting on one particular investment or asset class to perform well, your portfolio remains balanced and can better withstand volatility.

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Alternative investment ideas

Unlike traditional investments in the stock market which directly correlate with the state of the economy, alternative investments can actually hedge against inflationary environments.

Here are a few alternative investment ideas to consider when it comes to diversifying your portfolio. 

Real estate 

Real estate investments consist of physical properties, such as houses, apartments, and commercial buildings. It is considered a relatively safe investment and has historically generated higher returns than most asset classes. There are two ways to invest in real estate: buying the property outright, or investing in real estate funds or ETFs.

If you’re interested in investing in real estate, here are a few tips:

•    Location is key. Try to find properties in desirable areas that have strong demand.

•    Do your research. Make sure you understand the risks and rewards associated with each property.

•    Have a long-term outlook. Real estate is a slow-growth investment, so you need to be patient if you want to see returns.

Commodities

Commodities consist of physical goods such as metals, grains, and energy products. There are two ways to invest in commodities: buying physical commodities or investing in commodity funds or ETFs.

If you’re interested in investing in commodities, here are a few tips:

•    Diversify your portfolio across a variety of different commodities.

•    Beware of investing in commodities that are overvalued or have high debt levels.

•    Make sure you understand the risks and rewards associated with each commodity.

Cryptocurrency

Cryptocurrency is a digital asset that uses cryptography to secure its transactions and control the creation of new units.

Bitcoin, the first and most well-known cryptocurrency, was created in 2009. Bitcoin has also been proven to be a good hedge against inflation.

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Cryptocurrencies are considered a high-risk investment, and although newer to the market, they have historically generated higher returns than most other asset classes. There are various ways to invest in cryptocurrencies, including through mutual funds, ETFs, and individual cryptocurrencies.

If you’re interested in investing in cryptocurrencies, here are a few tips:

•    Do your research. Make sure you understand the risks and rewards associated with each cryptocurrency.

•    Diversify your portfolio across a variety of different cryptocurrencies.

•    Beware of investing in cryptocurrencies that are overvalued or have high debt levels.

Loans

When you loan someone money, you are essentially becoming a creditor. The borrower will usually pay you back over a set period, plus interest. There are two types of loans: secured and unsecured. Secured loans are backed by collateral, such as a house or car, while unsecured loans are not. If you’re interested in loans, here are a few tips:

•    Do your research. Make sure you understand the risks and rewards associated with each loan.

•    Beware of loaning money to people who may not be able to repay it.

•    Look for borrowers with a good credit history who will likely repay the loan on time.

Investing in loans can be an excellent way to generate steady returns, but it’s essential to understand the risks involved.

Managing your alternative investments

Overall, alternative investments are a great way to diversify your portfolio as well as hedge your portfolio against risks from inflation.

If you’re an investor in alternative assets, AltExchange offers industry-leading alternative investment reporting platforms. Get started tracking your alternative investments today.

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