Worst Investments During Inflation: 11 Assets to Avoid

Inflation is the general increase in prices and fall in the purchasing value of money. The US inflation rate is currently at a 40-year high, and it's showing no signs of slowing down. This has many investors worried about their portfolios, and for good reason. Inflation can eat away at the value of your investments, so it's important to choose your investments wisely.

In this article, we'll discuss the worst investments to make during inflation. We'll also provide some tips on how to protect your portfolio from inflation.

Bonds

Bonds are generally considered to be a safe investment, but they can be a bad choice during inflation. Bonds pay a fixed rate of interest, so the value of your investment will fall as inflation rises. This is because the purchasing power of the interest you earn will decrease.

For example, if you buy a $1,000 bond that pays 5% interest, you will receive $50 in interest each year. However, if inflation is 3%, the purchasing power of that $50 will decrease by 3% each year. This means that after 10 years, the purchasing power of your $50 interest payment will be only $38.74.

Certificates of Deposit (CDs)

Certificates of Deposit (CDs) are another type of fixed-income investment that can be a bad choice during inflation. CDs pay a fixed rate of interest for a set period of time. Once the CD matures, you will receive your principal investment back plus the interest you have earned.

The problem with CDs is that they lock you into a fixed rate of interest for a set period of time. If inflation rises during that time, the value of your investment will fall.

For example, if you buy a 1-year CD that pays 2% interest, you will receive $20 in interest if you keep the CD for the full year. However, if inflation is 3%, the purchasing power of that $20 will decrease by 3% by the end of the year. This means that you will have lost money in real terms.

Savings Accounts

Savings accounts are a safe place to keep your money, but they offer very low interest rates. This means that the value of your savings will decrease as inflation rises.

For example, if you have $1,000 in a savings account that pays 0.5% interest, you will earn $5 in interest if you keep the money in the account for the full year. However, if inflation is 3%, the purchasing power of that $5 will decrease by 3% by the end of the year. This means that you will have lost money in real terms.

Cash

Cash is a convenient way to make purchases, but it is a bad investment during inflation. Inflation erodes the purchasing power of cash over time.

For example, if you have $1,000 in cash today, you can buy a certain amount of goods and services. However, if inflation is 3%, the purchasing power of that $1,000 will decrease by 3% by the end of the year. This means that you will be able to buy less goods and services with your $1,000 next year.

Real Estate

Real estate can be a good investment during inflation, but it is important to choose your investments carefully. Not all real estate investments are created equal.

Residential real estate can be a good investment during inflation if you rent out the property. The rent you receive will increase with inflation, which will help to offset the rising cost of the property.

However, commercial real estate can be a bad investment during inflation. The value of commercial real estate is often tied to the economy. If the economy slows down, the value of commercial real estate can decline.

Gold and Silver

Gold and silver are often seen as safe haven assets during inflation. However, they can also be a bad investment. The price of gold and silver is very volatile, and it can decline as well as rise.

For example, the price of gold fell by 25% in 2013. The price of silver fell by 35% in 2014.

Tips for Protecting Your Portfolio from Inflation

Here are a few tips for protecting your portfolio from inflation:

• Invest in assets that will increase in value with inflation. These assets include stocks, inflation-linked bonds, and real estate.
• Diversify your portfolio. This means investing in a variety of different assets, such as stocks, bonds, and real estate.
• Rebalance your portfolio regularly. This means adjusting the mix of assets in your portfolio to match your risk tolerance and investment goals.
• Stay calm and don't panic. Inflation is a normal part of the economic cycle. If you stay calm and make wise investment decisions, you can protect your portfolio from the damaging effects of inflation.

Conclusion

Inflation is a serious risk to your portfolio, but it is not a reason to panic. By following the tips in this article, you can protect your portfolio from inflation and achieve your long-term investment goals.

Here are some additional tips for investing during inflation:

• Consider investing in TIPS (Treasury Inflation-Protected Securities). TIPS are bonds that are indexed to inflation, so the value of your investment will increase as inflation rises.
• Invest in real estate. Real estate is a tangible asset that can provide a hedge against inflation.
• Invest in stocks. Stocks are a riskier investment than bonds, but they have the potential to generate higher returns.
• Diversify your portfolio. This means investing in a variety of different assets, such as stocks, bonds, and real estate.
• Rebalance your portfolio regularly. This means adjusting the mix of assets in your portfolio to match your risk tolerance and investment goals.
• Stay calm and don't panic. Inflation is a normal part of the economic cycle. If you stay calm and make wise investment decisions, you can protect your portfolio from the damaging effects of inflation.