- Inflationary pressures are quite evident in the New Zealand economy following the release of the June quarter CPI report.
- It seems to be the right time for investors to hedge their money against inflation.
- Investors can ponder on investing in asset classes which usually outperform the market during inflationary spells.
The COVID-19 pandemic initially stirred the global markets leaving major economies incapacitated and in dire need of fiscal and monetary support. New Zealand was also one such nation during the early stages of the pandemic. However, the country’s continued efforts to contain the virus, coupled with its geographic exclusivity from the rest of the world, enabled it to become one of the fastest recovering nations in the world.
At a time when New Zealand has given its economic revival a head-start, the Reserve Bank of New Zealand (RBNZ) has decided to roll back its bond-buying program by July 23. The hawkish stance by the central bank has set forth expectations of inflationary spells in the country over the coming months.
Much of these expectations were reaffirmed when Statistics New Zealand reported that the Consumer Price Index (CPI) for the June quarter showed a higher-than-expected increase of 1.3%. This meant an annual inflation rate of 3.3%, the fastest in a decade.
High inflation figures have further fuelled the ongoing inflationary pressures’ expectations, making investors more cautious about their next move. In the given scenario, it seems crucial for investors to hedge their money against inflation and dodge potential losses.
Here are some key tips and strategies that can help investors cope with inflationary concerns:
Invest in Equities
Investing in stocks issued by companies allows investors to take a bite out of the business’ profit. While inflation erodes the real value of money, it presents companies with higher returns in nominal terms.
To be more specific, firms enjoy higher revenues when the price of their goods rises, which is eventually apparent in their stock market performance. As equity investors often relish higher returns during inflationary spells, the stock market is known to beat inflation.
With that said, it is also important for investors to differentiate between long-term and short-term inflation. Stocks can be a viable investment option under long-term inflation. However, investors may not gain similar returns if the inflation runs for a shorter time frame.
Delve into Real Estate
Stock market participants looking for an investment vehicle to diversify their portfolios can give real estate a shot during inflation. The value of property generally increases with the ongoing inflation levels. When a price rise is anticipated, investors can lock in their future profits by investing in real estate.
Apart from physical ownership of real estate, one can also invest in the lucrative sector through Real Estate Investment Trusts (REITs) in the equity market. This adds to the additional advantage of not having to take a mortgage to buy a property.
However, there persists a risk of decline in demand for real estate when the economies fully recover from the pandemic, which may slow down a rise in property prices. Thus, investors should undertake proper planning and use their smart foresight before taking exposure to this space.
Do Not Forget Gold
Gold is believed to be one of the strongest hedges against inflation. Since gold holds value beyond just nominal figures, investors often use it to protect themselves from losses incurred during uncertain market events.
Meanwhile, any increase in prices observed in the market is usually passed onto real investments like gold. This explains why markets are abuzz with gold buyers during periods of rising prices. The popularity of gold among investors is not only a consequence of its phenomenal performance during inflationary periods but also attributed to its quality of being a safe-haven asset.
Investors may also consider keeping a certain portion of their portfolio always locked in gold. However, one should not neglect that gold is a volatile asset. So, investors may not always obtain exciting returns from it over the short run. However, investing in gold over a prolonged period could be beneficial for investors.
Turn to Other Commodities
Just like gold, other commodities in the market can be viable options of investment during an inflationary period. As commodities retain their intrinsic value, they tend to appreciate in value when market prices are broadly rising.
Investors can ponder on taking exposure to commodities like oil, iron ore, natural gas, lithium, and copper during inflation. However, they must remember that not all commodities are considered as safe as gold.
Besides, the price of commodities is largely dependent on their demand and supply in the market, making them extremely susceptible to changes. As the market forces take shape, a commodity’s price can show sharp upticks or downturns without any warnings. Thus, investors should choose their preferred commodity cautiously.
Explore Alternative Investments
In the new age of abundant financial knowledge, collecting vintage art has also become a contemporary way of investing. People no longer collect art just for recreational purposes but also use it as a tool to make profits.
These collectables observe a meteoric rise in prices if inflation continues for an extended period. However, the market for most collectables is very volatile. Moreover, verifying their credentials can also be a problem at times for investors.
All in all, investors may fret over the potential rise in prices over the coming months but acting on time can save them. Investing wisely while utilising a mix of fundamental and technical research during inflationary bouts can help investors enhance their portfolio returns and make the most out of their money.