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How To Make Money During Inflation

Jonathan loves talking politics, economics and philosophy. He carries unique perspectives on everything making him a rather odd mix of liberal-conservative with a streak of independent Austrian thought.
Published: November 29, 2021
Investing in value stocks might be the best way to make money during inflationary periods.
Investing in value stocks might be the best way to make money during inflationary periods. (Image: nattanan23 via Pixabay)

Financial experts are predicting that the current high inflation levels might continue for a few years. The number one priority for investors in an inflationary environment would be to hedge their assets. Such a move can counteract the effects of inflation and protect the value of their investments.

However, this conservative move might not even work. A more aggressive and possibly profitable way to tackle an inflationary economy would be to actually try making money during this time through investments. Commodities, for example, can be a good investment during inflation. 

“Oftentimes, real asset price increases are what fuels inflation in the first place… So, we believe investing in these assets can work as a natural hedge against rising costs in our everyday lives,” analysts from Wells Fargo stated in a recent report.

According to the bank, commodities like agricultural products, oil, and gold have outperformed the broader markets by a big margin during the three previous inflationary periods in American history—the 70s, late 80s, and early 2000s. There is no reason why it couldn’t happen again this time around. 

Stocks are another great option. Value stocks are your best bet during an inflationary period. Value stocks refer to shares of companies that show strong earnings relative to their present price. Such companies usually have strong cash flows as well, which is a big plus during inflation.

Between the 60s and the 80s when inflation was an issue, most stocks lost their value as the cost of living surged. However, stocks of companies that held real assets had debts—the value of which declined due to inflation—and were in a position to raise prices without affecting sales did very well.

Asset manager GMO did an analysis and found issues with investing in most assets during inflation, including treasury bonds. Even industrial commodities were dismissed since they cost money to store. Traditional havens like gold or new digital cryptos like Bitcoin have no intrinsic value, the group said. The best strategy, GMO discovered, is to invest in cheap stocks. “This is like being offered inflation insurance at a discount,” the organization said.

A third option is to invest in real estate. Not only do rising prices boost the value of the real estate over time, you can also make monthly income by renting out homes and office spaces. The rental income can help the investor beat the inflationary surges.

“Real estate performs well because landlords and property owners see the values of their properties increase… Also, landlords can somewhat easily pass-through rent increases,” Alex Doll, a certified financial planner and president of Anfield Wealth Management in Cleveland, told CNBC. He has recently been cutting down his clients’ exposure in growth stocks, moving their funds into value stocks as he believes such stocks “do a bit better” during inflation.