Where to invest your money according to experts
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If you’ve noticed that the hotel you’re looking to book for your next summer vacation is more expensive than last year, or that your grocery bill has gone up even though you buy the same amount of food, you are witnessing the results of the country’s latest inflation surge.
“What I tell my customers is gas doesn’t get better, your money just gets worse,” said Ivory Johnson, CFP and founder of Delancey Wealth Management, tells Select.
While the increase in the prices of goods and services in recent months has been mainly attributed to the reopening of the world, we don’t know exactly how long this will last or how we should react financially.
For the everyday consumer, rising prices can mean limiting crazy spending to avoid a big blow to your wallet. But for those who invest, you are probably more concerned with your money losing value in the market.
Select spoke with a handful of experts to get their best advice on how to protect your money against rising inflation. Here are eight places to put your money right now.
TIPS means Inflation-protected Treasury securities. While the term might sound like a mouthful, TIPS are actually pretty straightforward to understand.
TIPS are government bonds that reflect the rise and fall of inflation. So when inflation rises, so does the interest rate paid. And when deflation occurs, interest rates go down.
“Adding TIPS can help balance your fixed income or bond portfolio because they are indexed to inflation,” says Diahann Lassus, CFP and senior manager of Peapack Private Wealth Management.
Because TIPS are backed by the United States Federal Government, they are one of the safest investments for your money and an effective way to diversify your investments while supplementing your future retirement income.
Because the price of TIPS increases according to the Consumer price index (a measure of the consumer prices paid over time), it helps protect against these unexpected spikes in inflation, adds Amy arnott, portfolio strategist at The morning star. “TIPS is by far the best inflation hedge for the average investor,” she told Select.
TIPS bonds pay interest twice a year at a fixed rate and are issued with maturities of 5, 10 and 30 years. At maturity, investors receive the Adjusted Principal or the Initial Principal, whichever is greater.
Cash is often overlooked as a hedge against inflation, says Arnott.
“Although cash is not a growth asset, it will generally follow inflation in nominal terms if inflation is accompanied by a rise in short-term interest rates,” she adds.
Anna N’Jie-Konte, CFP and founder of Dare to dream Financial planning, Okay. With the pandemic proving how unpredictable the economy can be, N’Jie-Konte suggests always keeping money in a high-yield savings account, money market account, or CD.
“Having too much money is an underestimated risk for personal finances,” she adds. N’Jie-Konte recommends setting aside six to nine months for one-income households and six months of cash for two-income households.
Lassus advises holding your CDs for the short term until we have a better understanding of what long term inflation can look like.
Our Top Rated High Yield Savings Accounts, Money Market Accounts and CDs
Good news: We’ve already researched the best accounts that offer higher than average interest rates for your cash savings.
For the best high yield accounts, consider Marcus High Yield Online Savings by Goldman Sachs. It offers no fees, easy mobile access, and is the easiest savings account to use when all you want to do is grow your money with no strings attached.
For the best money market accounts, consider the Ally Bank Money Market Account. It gives users access to both checks and a debit card (good for ATM access), has 24/7 customer service, highly rated, easy mobile app to use and offers refunds at off-grid ATMs.
For the best CDs, first think about how long you want to keep your money in one. Select ranked the top picks for three months (BrioDirect high speed CD), six months (iGObanking High Yield iGOcd®), one year (CFG Community Bank CD), Three years (First CD of the National Bank of America) and five years (Ally Bank High Yield CD).
3. Short-term bonds
Keeping your money in short-term bonds is a strategy similar to keeping cash in a CD or savings account. Your money is safe and accessible.
And if rising inflation results in higher interest rates, short-term bonds are more resilient while long-term bonds will suffer losses. For this reason, it’s best to stick with short- and medium-term bonds and avoid anything that is geared towards the long term, suggests Lassus.
“Make sure your bonds or bond funds are shorter term because they will be less affected if interest rates start to rise quickly,” she says.
“Investors can also reinvest short-term bonds at higher interest rates as the bonds mature,” Arnott adds.
“Stocks can be a good hedge against inflation over the long term, but can suffer in the short term if inflation spikes,” Arnott said.
If you’re new to investing, it’s easier than ever to get started. To do this, you will need to open an account through a brokerage or trading platform. Select has reviewed over a dozen online brokers that offer commission-free transactions to find the best options for new investors. the The best brokerages for free stock trading have the widest range of investment options, user-friendly technology, quality customer support, and educational resources.
Here are our top six picks:
When investing, Lassus cautions you to keep in mind that current inflation problems may be transitory. So be careful not to make drastic changes to your portfolio that could hurt performance if inflation drops. “Diversification works whether we have rising inflation or stable inflation,” she says.
Real estate has traditionally done well during times of higher inflation, as property values can rise. This means your landlord can charge you more rent, which increases their income, so they keep pace with rising inflation.
Beyond home ownership, real estate investments can be made through REITs (also known as real estate investment trusts) or through mutual funds that invest in REITs.
The post-pandemic era, however, could change the way real estate responds to higher inflation. “The fundamentals are being questioned somewhat because of the long-term effects of Covid,” Arnott said. Demand for commercial real estate, like office and retail space, is still in limbo as more companies embrace remote working or hybrid models.
While gold does not always protect against rising inflation in the short term, it tends to hold up over the long term (i.e. decades).
The prices of commodities like oil, metals, and agricultural products generally increase with inflation, so they can be a good hedge against inflation.
Investors should note, however, that commodities can also be extremely risky, Arnott adds. The prices of raw materials are largely dependent on supply and demand, which can be very unpredictable. This makes it a risky investment, in addition to investors taking leverage: the chances of rewards are high, but so are the risk of losses.
“Bitcoin is often described as ‘digital gold’ and should theoretically protect against inflation due to the limited supply. But the jury is still out on whether it will be a good hedge against inflation in the long run. “said Arnott.
And as a warning to investors, Arnott points to Bitcoin’s recent volatility. On the contrary, she says it emphasizes that Bitcoin can be difficult to integrate into your diversified wallet.
Investors have options to hedge against inflation, but the safest bet is TIPS. Otherwise, use a period of inflationary surges as a good time to review the overall return on your investments and your allocation to make sure they are aligned with your goals.
“Don’t make drastic changes based on current inflation or market conditions because most of us are still long-term investors,” Lassus said.
Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.