The word recession causes many investors to cringe. Others clutch their portfolios and review their strategy as we hear inflation used more frequently. While everyone knows that we are in the midst of it, we are finally starting to feel the full financial effects. For those in the lower income brackets, it’s getting harder and harder to keep up with the rising inflation rates and general cost of living. If you are concerned about protecting your wealth during these downturns, you need a solid investment strategy to offset these increases. As I watch my portfolio take a hit and doubt my decisions, I have often wondered how the 1% deals with inflation. You may be surprised to find that it isn’t much different than your own.
5 Ways the 1% Deals with Inflation
So, what are the wealthiest investors doing to insulate themselves against rising inflation? In a single piece of advice, the answer is to continue investing.
1. Make regular investments.
Even during economic downturns, you should continue investing. Although your returns may not be as high during a recession, making regular contributions to your investments accounts has proven to be one of the most successful ways to build wealth and maximize returns. In fact, choosing not to invest is probably the worst decision you could make.
Although stock prices are dropping and inflation continues to rise, there are still ways to make your portfolio profitable. You just need to change your approach and turn obstacles into opportunities. Periods of market instability mean you will have to make several adjustments. But, some asset types will protect you through these fluctuations.
Certain services and products will always be in high demand, even during times of economic recession. Many companies in the healthcare, utilities, telecommunications, consumer staples, and discount retail sectors will continue to perform well. And, if you purchase stocks when prices are on the dip, you could position yourself to make significant gains when the market rebounds.
However, there are risks with every type of investment. Not all stocks in these sectors will perform well. Therefore, you should also include assets that have a valuation that inversely correlates to the stock market. So even when stock prices take a dive, your other assets gains will offset the losses.
2. Diversify your assets with gold.
Any reputable financial advisor who is worth their salt knows that diversification is key. It is one of the most important ways to protect your portfolio against market volatility and huge losses. So, it makes sense that it is a commonly used strategy when the 1% deals with inflation.
In particular, some of the wealthiest investors diversify by purchasing gold. Since it isn’t correlated to other asset classes, it has long been a safe haven for investors. As stock prices plummet, the value of gold drastically increases. Therefore, many purchase gold as a means to protect their wealth.
Investing in gold provides more stability, especially as you get closer to your retirement years. And, you don’t have to purchase gold reserves to reap the benefits. You can also get in on the action by purchasing shares in mining companies, gold ETFs, or gold futures. This way you enjoy all the financial advantages of investing in gold without the hassle of dealing with jewelry, coins, and bullion.
3. Earn passive income through real estate.
One piece of investing advice that has always stuck with me is that property retains value. No matter how much the market fluctuates, real estate is a valuable asset in any political climate. Of course, the location and the specifications of the home will greatly impact its worth. But, even if the existing structure collapses, that land still holds value.
However, many people overlook investing in real estate because of the upfront costs. It’s hard to buy a property if you don’t have enough for a down payment or the capital to maintain it. But, innovative companies like Fundrise are making the real estate market more accessible to average investors. You can get started with as little as $10 and buy a percentage of a property. Then, you receive your share of the quarterly distributions.
It’s important to note that while some people can make money flipping houses, the real value lies in holding the asset and waiting for it to appreciate. If you aren’t an experienced contractor or know what you’re doing, you could end up with a money pit and a huge financial liability.
There will always be risks to consider before investing in real estate. But with the increasing demand for housing and real estate, it could offer a steady way to generate extra income.
4. Invest in art.
Historical prices have proven that art is one of the most successful investments. And, it continues to be one of the top performers, outperforming the S&P by more than 180% between 2000 and 2018. Not only is it one of the ways the 1% deals with inflation, but investing in priceless masterpieces is also how the ultra-wealthy make huge profits.
But, you don’t need to be a millionaire to own masterpieces. Nowadays, even the average Joe can invest in artwork. You can buy individual shares of well-known pieces as if you were buying stocks with sites like Masterworks. However, it requires a minimum of $5,000 and a waitlist of 25,000 people. So, you may have to get in line if you want a piece of this pie.
5. Invest in Yourself.
Some would argue that the best investment you will ever make is in yourself. Using your resources to improve your skills or increase your earning power is the best way to protect your future.
Although it may start with a degree or certification, it also includes staying relevant. You should also stay up-to-date with new systems and skills needed for future advancement in your field. Finding ways to stay competitive and use your experience to a financial advantage is the best way to protect yourself against rising inflation and an uncertain future.
- How to Protect Your Portfolio Before a Recession
- Why Rich People Stay Rich and Poor People Stay Poor
- The Rise Of Gold-Backed Stablecoins In A Post-Pandemic World
Jenny Smedra is an avid world traveler, ESL teacher, former archaeologist, and freelance writer. Choosing a life abroad had strengthened her commitment to finding ways to bring people together across language and cultural barriers. While most of her time is dedicated to either working with children, she also enjoys good friends, good food, and new adventures.