Inflation is a concern for every investor. To accumulate money over the long term, the returns from your investments have to beat the pace of inflation, which reduces the buying power of your money.
Because of the current volatility in the markets, some investors are seeking out low risk investments to keep their money safe, but these generally have low rates of return will not outpace inflation. As the cost of living continues to rise, investors need investment strategies that will help them compensate for the effects of inflation.
Here are some good investment strategies that you can use.
Focus On The Balance Between Risk And Reward
People are increasing their focus on safer investments because they are fearful that dramatic market swings will cause them irreplaceable losses. Unfortunately, there is really no way to get a rate of return that outpaces inflation without taking on some sort of financial risk.
The trick is to balance the amount of risk you are willing to take against the rate of return you are hoping to earn. Investors that are nearing retirement age should be assuming little risk to ensure that their money is there for them during their retirement years. Younger investors can assume more risk in their investment strategies to increase the chances that their portfolio returns will outpace inflation over the long term.
Consider Investing In Treasury Inflation-Protected Securities
Investing in Treasury Inflation-Protected Securities is one of the best investment strategies if you are worried about the effects of inflation on your future finances.
Treasury Inflation-Protected Securities are Treasury bonds that have rates of return that rise along with the rate of inflation. This means that if inflation increases, the rate of return on the Treasury bond increases as well. The bonds are issued in five-, 10- and 20-year terms and pay interest twice a year. These bonds are considered very safe because they are backed by and can be purchased directly from the government.
Dedicate A Portion Of Your Portfolio To Stocks
Over the long term, the stock market is the only investment vehicle that consistently delivers returns above inflation. This is a good reason to dedicate a small portion of your investment portfolio to stocks instead of shunning them altogether.
By keeping some of your money in stocks and the rest in low-yielding, safer investments, you increase your chances of earning an attractive rate of return that outpaces inflation without putting the bulk of your savings at risk.