As North American economies are experiencing increasing inflation due to the COVID-19 pandemic, climate change, and other economic factors, it is vital you shift your long-term investment strategy to take advantage of these inflationary times.
By adjusting your portfolio to take advantage of inflation, you will continue to increase your investments for the long term. During times of high inflation, the stock markets tend to be more volatile and savings account interest rates won't keep up. This means the money you have sitting in a bank account will be losing value.
To be proactive about your asset allocation during this time, consider moving cash and other investments to one or more of these options:
Option #1: Commodities
The price of commodities rises during times of high inflation.
For example, farming becomes more expensive due to the increased costs of seeds, fertilizer, fuel, and labor. As these increased costs take hold in the agricultural industry, the market value of the resulting crops becomes more expensive.
Some of the most popular commodities you can invest in are livestock or agricultural products, including:
While each individual commodity may struggle due to unforeseen bad weather, disease, or other factors, a portfolio with a balance of commodities is able to tolerate setbacks and still be very profitable.
Option #2: Precious Metals
Precious metals are rare elements that are mined from the earth. Each precious metal has an intrinsic value because it exists in a limited quantity.
While investing in precious metals may conjure up visions of gold coins, there are many other fantastic options, including:
Silver is less expensive than gold but tends to have a price that fluctuates along with the gold price. Platinum and palladium are used in the manufacture of vehicles and electronics so there is always going to be a strong market for them. Talk with a supplier to learn how to buy precious metals.
Option #3: Floating-Rate Bonds
If you would rather invest in bonds than precious metals or commodities, the best choice during times of high inflation is floating-rate bonds.
Floating-rate bonds are special loans banks make to companies with excellent credit ratings. These loans have variable interest rates. In addition, floating-rate bonds are a "senior" debt and high on the repayment schedule if the company faces bankruptcy.
Since floating-rate bonds have interest rates that climb with the inflationary rise in the price of goods and services, they make a great investment during inflationary times. And, since they are backed by companies with great credit, the chance of default is typically very low.
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