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Inflation, rising rates and housing markets – the best ways to protect your wealth

Inflation, rising rates and housing markets – the best ways to protect your wealth

Life is getting more expensive by the day, and many people want to protect their wealth by investing. Unfortunately, current development in Europe has caused supply issues for several products in a market that is already suffering from supply-chain problems. So if you wish to protect your wealth but don’t know where to start, we’re here to help.

Protecting wealth with stone

Buying a house can be a great way to protect your wealth. If everything goes well, housing prices go up with inflation. Imagine building a house for 100,000 and that the building costs are 50,000. If inflation is 10 percent the following year, it would mean that building costs are 55,000, causing the price to go up. This calculation excludes issues like population influx and the overall popularity of where you live. Interest rates are known to mess with housing markets, as higher interest rates make it more challenging to get a mortgage. This difficulty will result in lower mortgages, causing demand to fall and house prices to fall. Increased interest can make it a challenge to invest in a house since prices might fall short term. If you plan to live in a home for a more extended period, you shouldn’t be so worried about short-term fluctuations.

Protecting wealth with stocks

Investing in companies is considered a great way to protect your wealth. It is advisable to invest in stable companies that offer steady growth, profits and dividends. In addition, especially in economic downturns, it is crucial to diversify appropriately. ETFs can represent an excellent option for investors trying to protect their wealth as one ETF can diversify you over a global market if you wish to do so. For example, you can investigate consumer staples equities ETFs, which are considered a steady investment, as they’re absolute necessities for consumers. Multiple stocks can serve as a hedge against inflation, but many investors tend to turn to stable companies that pay steady dividends and have excellent cash-flows. Investors do this to ensure income through dividends, as stocks tend to fall drastically in an economic downturn. Dividend offers the investor a reason to hold on and not sell. Moreover, companies pay dividends from cash-flow reserves. Secondly, healthy cash-flows help companies stay out of trouble when they must repay loans.

Protecting wealth with bonds

Bonds are a popular way to protect your wealth and are often part of a well-balanced and diversified portfolio. Moreover, bonds are considered a more stable investment and are known to decrease volatility and risk within a portfolio. The risk correlates with the return, and returns tend to be lower on bonds. For example, US treasuries offer less interest than a treasury from the Greek government. The government provides less interest because the risk is considered lower in the US, and therefore, interest on bonds is lower. Recent developments in interest hikes are a sign of economic strength and investors often avoid bonds to seek alternative ways to get a better return. Investors looking to different ways to earn a return causes bond prices to go up, but bonds are an excellent way to protect your wealth against inflation. Bond ETFs are also be a popular way of hedging against inflation. Like stock ETFs, bond ETFs are often traded passively and are often better for long-term investors. In addition, investors can gain well-diversified bond exposure with yields tracking bond index averages.

Protecting wealth with alternative assets

Gold and real estate are popular choices for investments, and there are plenty of others. Many investors choose an alternative, or non-conventional, investment because they may improve returns and reduce total losses during a market collapse by performing independently of the stock market. Alternative investments are especially appealing during firm stock and bond market volatility periods. One disadvantage of alternative investment is the limited liquidity offered to the investor when trading stocks or bonds. For example, investing in art has historically been limited to the wealthy. Still, there are some exciting opportunities to enter this market, such as shares and crowdfunding. In addition, investors interested in the art market can also invest in index funds that monitor the sector. Things like whiskey or wine can also be interesting, not only as a hedge against inflation, but also for significant profits. Because vineyards only produce a limited number of bottles every year, high-end wine is a precious investment. As time passes, the quantity of bottles of each type of wine drops, making each bottle more expensive if demand for it remains high. Wine may also be correlated to climate change since changes in temperature and precipitation patterns can negatively influence growing conditions. Wine is only one example and there are many more alternative investments to consider to protect your wealth.

Protecting wealth with commodities

Commodities like oil, wheat and orange juice and inflation have a special connection. Commodities serve as a predictor of future inflation, as the cost of the items a commodity produces correlates with the commodity’s price. This relationship naturally makes for a perfect hedge against inflation. Unfortunately, commodities can be highly volatile and investors should be prudent when investing in commodities. This high volatility can be due to geopolitical issues and disruptions in supply and demand. On the plus side, investors may choose a commodity ETF, which properly diversifies them across multiple types of commodities.

A final word

During inflationary periods, it is crucial to make sure that your money is not being burned away in terms of purchasing power but instead working to create more money. Therefore, all the investments mentioned above can be viable ways to protect yourself against losing wealth.
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