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4 Reliable Tips for Protecting Your Wealth From Inflation

April 21, 2023

Table of Contents

    Table of Contents

      Inflation slowly takes down your wealth. If you don’t hedge your wealth against inflation, your financial health may suffer in the long run. It is important to make good investment plans and stick to metals like gold for additional security.

      One of the most prevalent mistakes that working professionals make is not taking steps to protect their wealth from inflation. Did you ever realise how one of your properties no longer has a high value the way it used to have when you bought it?

      Inflation is to blame here. Over time, the money that you save or the assets that you collect can fall short in value. This has a direct negative impact on your financial security — you no longer have a high-value portfolio. Therefore, even a slight financial crisis could stress your financial health. 

      These uncertainties highlight the importance of diversifying your financial portfolio and keeping a check on inflation – the main reason why your money doesn’t grow over time. In addition to your savings, your investments also suffer from the corrosive impacts of inflation. 

      As prices rise, the value of money drops. Even though you may not straight away realise it, your money, in real terms, is no longer able to buy you the same commodity as it earlier could.

      This is sometimes referred to as the money illusion- you see your money in nominal terms (in terms of nominal currency) and not in real terms (in terms of the actual value adjusted for inflation). 

      But you are not alone — the general crowd usually doesn’t realise this either. An educational analysis of inflation can help you think of ways in which you can safeguard your wealth from it. Financial advisers will always ask you to focus on real returns when looking at your investments. Let’s see what that means!

      Here’s what you can do to eliminate the impact of inflation and secure your wealth and financial health: 

      1. Purchase precious metals physically- long term financial security

      When we talk about long term financial security, there’s no way we don’t bring in precious metals on the table.

      Metals like gold and silver have been a good option for financial stability. Gold is a widely cherished financial asset. In the thousand years of its history, it has seldom disappointed its buyers.

      You can trust gold in whatever the situation, be it weddings or a normal gold loan. We are lucky to live in this advanced era where investments in digital gold are taking the lead as one of the finest investment options. With online financial services provided by apps like Jar, you can start investing in digital gold with just Rs.10. 

      Silver, too, is a good investment option for anyone considering short term financial security. For large sums, invest in gold, and for day-to-day transactions, silver is more apt.

      Even when the value of these metals drops, this fall doesn’t last too long and the value stabilises soon. Therefore, the first step to saving your wealth from inflation is to invest in metals. 

      2. Don't let your money sit – make speculative investments

      If you have large sums of cash, turn them into assets. Make sure that you invest in assets that can be easily sold.

      The more the liquidity, the better the investment plan. In this way, you can sell the asset and get cash easily whenever the need arises in the future.

      If you find yourself not drawn towards assets like a new luxury car as a replacement for your old one or any other collectible asset (tangible physical assets like stamps, pieces of fine art, toys, etc. that have a  tendency to appreciate in the future and diversify your financial portfolio), you could try to invest in stocks.

      Stocks are one of the most liquid assets and therefore are a good investment plan. A good speculative investment in stocks and bonds can also help you save your money. 

      Another option is to invest in foreign exchange. Here, invest in a currency that you think will do good. Whatever you do, just ensure that you are not letting your cash be eaten up by inflation; move it around and mobilise it. 

      3. Invest in property assets

      Due to advancements in infrastructure, buying property is not everyone’s cup of tea. However, if you can, property is still a great hedge against inflation.

      Through buying a property, say a home, you can add an additional source of income too- buy to rent and keep up with inflation. With this additional income source from real estate, you will be able to save money and even try investing in risky but highly beneficial assets like equity funds. 

      You can buy an apartment, a field, or simply a parking space; anything can work for you. In addition to providing you with an income, they will also provide you with financial security and a sense of ownership.

      If your property is at a good location, say near some official building or is just well connected to a big city, over time, its value will skyrocket, and you will have a good amount of collateral backing your financial portfolio — necessary for a stable financial future. 

      4. Try out the 60/40 stock/bond investment plan

      For investment in stock markets, a 60/40 ratio between stocks and bonds is considered to be one of the finest portfolios. The reason is that it creates a conservative portfolio where the investor doesn’t take too much risk, and it is also a traditional way to start investing in the market.

      One drawback of this investment option is that it may underperform in the medium run. Equity shares are considered a risky investment. But people still consider investing in them due to the high rate of returns that they offer. 

      Financial advisors generally suggest that a 60/40 ratio may not be as fruitful in short periods as it is in longer periods.

      In longer periods, a 60/40 investment plan can even outdate the high profits that you get through equities; compounding is the key to this magic. In short, these funds will take some time and a little mix of compounding in order to reap high profits. Still, they are a great investment option, especially for beginners. 

      Inflation is like slow poison for your wealth. Hedging against inflation is necessary if you wish to attain financial security. Just accumulating cash is not a good option — you will have to make your money work for you.

      Make speculative investments through simple online tools like the Jar app and keep a track of your assets. This way, you can have financial security along with additional income sources.