7 Impactful Ways To Protect Yourself From Inflation
The history of inflation
Rising fuel and food costs have pushed U.S. inflation to the fastest pace of annual inflation in over 40 years.
Although inflation has been significantly higher in 2022 compared to recent years, it’s not at all a new thing. The United States alone has experienced several periods of high inflation throughout its history.
The most recent period was in the 1970s, when the country went through double-digit years of inflation.
Due to the war in Ukraine and continued supply chain disruptions, Inflation isn’t expected to come down anytime soon.
Janet Yellen (former federal reserve president and the current Treasury Secretary) stated recently that “Americans will likely continue to see "uncomfortably high" inflation over the next 12 months”.
So what can you do to protect yourself against inflation?
Well, a few things!
How to protect yourself from inflation:
1.) Buy Things You Need In Bulk
Every time you walk into the grocery store these days, it seems prices have gone up yet again. If you can afford to buy a little more and have the space at home, the product cost is usually lower when you buy things in bulk.
Buying extra non-perishable items such as canned food, toothpaste, toilet paper, paper towels, etc could be a good idea if you expect prices to continue to rise.
You’re going to use these items anyways, so you might as well stock up if you have the extra money to do so. Especially if prices continue to rise 7%+ per year. Buying items now that you will use later will save you money if prices continue to increase.
2.) Invest In Stocks With Pricing Power
Stocks that have problems raising their prices due to consumers not accepting their higher prices are best to avoid during inflationary periods.
Some of the best stocks to own during inflation would be in companies that can increase their prices without decreasing demand.
These typically include companies that produce commodities (such as oil companies or agricultural companies) or companies that are so ingrained in our society that people would feel lost without them.
The S&P 500 is always a solid bet if you want to avoid playing the “stock picking” game. Most of the 500 companies in the index have proven themselves through tough times and are also a core part of our everyday lives.
3.) Ask For A Raise or “Job Hop” To Stay Ahead Of Inflation
US wages and salaries have seen a record 4.7% increase in 2021. The bad news? Inflation reached 7% over the same period. Meaning inflation gave the average worker a 2.3% pay cut last year.
It’s not always easy to ask your manager for a raise, but doing it the right way can make it easier. Managers across the board are aware of what is going on. They will likely not want to lose you, given how difficult it is to find employees in this current market.
Your best bet is to come to the negotiation table with your homework. It’s worth mentioning the cost of living increases, similar positions that you find online paying more, and highlighting your accomplishments and responsibilities. If they hesitate to give you a raise based on what you present, you might be better off working for another company.
Job hopping tends to yield the best potential for a raise. Depending on your work, many employees get an 8-10% pay raise by joining another company.
4.) Invest in I-Bonds
Do you have cash sitting around but don’t want to invest in the stock market? Then you should consider I-Bonds!
I-Bonds are a special type of U.S. government savings bond created to protect an investor’s bond investment from inflation.
They are currently yielding 7.12% per year and adjust for inflation every 6 months (U.S. government-insured).
However, you can only contribute up to $10k per year, and you must hold them for 1-year minimum before cashing out.
You can learn more about I-bonds by checking out one of my previous blog posts here.
5.) Avoid Variable Interest Rate Debt
Although debt can be used to your advantage during inflationary times, variable rates (sometimes referred to as adjustable rates) for debts (such as credit cards, mortgages, and car payments) are not a good idea.
It becomes more likely that the Federal Reserve will raise interest rates to combat inflation during inflationary times. If that happens, the interest rate on variable interest rate debt will increase your monthly payments.
Because of this, opting for fixed-interest rates is ideal. That way, you won’t get hit as hard if interest rates are increased.
6.) Invest In Real Estate
Real estate is considered another approach to protect yourself against inflation. Renting during inflationary periods leaves you more vulnerable to rent increases, as prices across the economy increase.
Renters across the United States are already facing sharp rent increases, averaging up to 40% in some cities.
Although the real estate market could get hit hard if the federal reserve increases interest rates, real estate has always been a solid long-term investment.
If you decide to buy a home, make sure it’s something you can afford to own and make sure you are comfortable with the monthly payments for the years to come. A few weeks ago, I wrote a blog post that goes over the 8 Unexpected Costs of Buying a Home. You can check that blog post out by tapping here if you’re interested.
7.) Invest In Collectibles
Collectibles can also serve as a hedge against inflation. Gold/Silver, rare coins, exclusive trading cards, luxury watches, and even antique rings tend to do well during inflationary times.
Collectibles can be any items worth far more than their original price and are also considered alternative investments.
The value of collectibles is typically based on emotional factors, which are always powerful. Due to collectibles' supply/demand nature, when the money supply increases, and with that inflation, collectibles tend to increase as well to adjust.
“Sell your dollars” for things that can’t be printed
At the end of the day, the best way to protect yourself from inflation is to essentially “sell your dollars” for things that can’t be printed. Especially during times of high inflation. Predicting how long inflation will last is difficult to do. Your best bet is to diversify among a few things we talked about in this blog based on your financial situation.
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Want to keep learning? Check out some of my other blog posts:
As Always: Buy things that pay you to own them.
-Josh
Blog Post: #019
