You might think the biggest threat to your money is scammers online who could steal your identity, but in 2022, there is a more powerful enemy at play. One subtle but deadly threat to your wealth is inflation.
Right now, inflation is up 7.5% from a year ago, and it doesn’t show any sign of slowing down. As the value of the dollar decreases, and costs rise, employers can’t keep up with the rate of inflation, even with sizable wage increases for their employees.
Why is inflation getting worse?
Jaspreet Singh of the Minority Mindset lets us in on several reasons why inflation is around, and why it keeps getting worse.
Did you know that 13 trillion dollars were printed by the US federal government as relief money during the Pandemic? This assisted with propelling the economy, but it caused the value of each dollar to decrease because of the accessibility of this government printed money. Americans began spending money they hadn’t worked for, which caused demand for supplies to rise, and thus we have the supply chain issues we’re seeing today.
Jaspreet says that the federal government has a few options for attempting to help inflation slow, but none of them are ideal.
- The Fed could cut interest rates in order to encourage more borrowing and to have more money flowing naturally through the economy. But Jaspreet says this would cause even more inflation, with money more accessible.
- The Fed could also raise interest rates, but Jaspreet points out that the US economy isn’t growing and thriving enough currently (in part due to inflation) to sustain higher interest rates. This would deter borrowers from putting on debt in the first place, and might create even more inflation, as well as a recession.
As you can see, both of these options wouldn’t solve the issue of inflation. Since this “big picture” federal intervention wouldn’t help the problem either way, it’s up to individuals to protect themselves against rising and worsening inflation.
Jaspreet reminds us that inflation is known as the “silent tax” because people that don’t understand what it is are suffering from it. Did you know that educated investors can actually protect themselves against inflation?
Jaspreet Singh, the Minority Mindset, shares how you can protect your wallet.
What can we do about inflation?
Mainly, Jaspreet points out that investors can no longer count on their dollars to hold value. They must put these dollars to work by investing in different ways and different places. There are several avenues for diversifying your dollars, and all of these will help protect them against inflation.
Jaspreet shares his approach to investing in different places, with different goals.
The first goal of passive investing is to have an automatic draft of your money that is invested consistently over time. Jaspreet says that it’s important that you are consistent with this method and give it time. Let your money continue to be invested automatically, and leave it alone. Don’t buy and sell based on the circumstances of the market in this scenario. Here are several recommendations he has for the options out there for your passive investments:
Jaspreet says investors should be sure to invest in stocks, and more specifically ETFs. These provide the investor with exposure to a certain index, or segment of a market (think energy, healthcare, or financial sectors).
This provides you with a “piece of the pie” of a certain market or index, that helps your investments not solely rely on one sector. Several different great options for these investments include:
- S&P 500 stocks – these companies are typically reflective of the US economy, and help your money to perform in line with the successes (and recessions) of these huge businesses.
- Innovation stocks – these stocks include new ideas in the tech world, and also include higher risk.
- Emerging markets stocks – these ETFs will include companies outside the US. This is a great key to success for protecting yourself against the US dollar losing value, since these investments include other currencies in different countries.
The second opportunity for passive investing that Jaspreet points out is cryptocurrency. He advises buying coins you have vetted and approved, as well as some stable coins to help balance out the risks involved in crypto. Again, consistency and time are key with this method, so be sure to invest money consistently and leave your investments untouched when crypto prices fluctuate.
Commodities are the last piece of the diverse puzzle that Jaspreet recommends for the passive investing strategy. He points out that commodities hold their value better than the dollar, since they must be mined or created, unlike the dollar which can be “printed” out of thin air. He says to think of commodities as a “financial insurance” against inflation. When you passively invest in gold or other commodities, you consistently protect yourself against inflation.
The next method of investing to avoid losing money to inflation is active investing. This is just the opposite of passive investing, and it includes researching investments and deciding to invest in them when you see a good deal. Jaspreet recommends this investment lineup when it comes to active investing:
- Businesses – this one is pretty self explanatory. Choose businesses you feel optimistic about and remember to consider if these businesses have models that hedge their operations against inflation.
- Real estate – Jaspreet says that real estate is so key to making money on your investments. Look for a great deal on the real estate market that you can get a cash flow from quickly.
- Startups – with the opportunity of startups comes a higher risk, but this can mean great reward over time. Do your research to find startups you believe in.
- Stocks – here’s the fun part. With active investing, you can buy individual stocks you’ve had your eye on if the market crashes, and swoop in for a great deal.
- Crypto – similarly to stocks, you can watch the crypto market and buy coins you’ve been eyeing if they go down in price.
The inflation situation is getting increasingly worse, and it’s bad news for financially uneducated Americans. If you want to dodge the downfalls of inflation and protect your wealth, these active and passive strategies can diversify your money enough to ensure that your investments will outperform the fast rate of inflation. Don’t just fear a one-time event like a scammer using your credit card, watch out for the silent tax of inflation that will eat away at your wealth over time.