Inflation is a phase in the economy when there is a sustained rise in the prices of goods and services. This results in decline in the purchasing power of money, which means that with the same amount of money, you are no longer able to buy the same tangible goods as earlier. There can be different factors responsible for inflation, depending on the type of economy.
For example, in a growing economy, the rise in cost of raw materials can result in a rise in price of manufactured goods. However, in general, the price of commodities is directly proportional to demand and inversely proportional to supply. The more the demand for the product in the market, the higher its price.
The rise in prices due to increased demand, can be countered with adequate supply of the product to the market. Thus, to control inflation and maintain a stable economy, it is essential to ensure that supply never falls short of demand.
|Best Investments During Inflation|
Inflation results in devaluation of money which means less purchasing power. So, investments at the time of inflation should be all about the proper use of your dollars. The trick is to look out for the highest gaining sectors and invest your money in them. The energy sector is an example of such a sector. Let us have a look at some good investments during inflation.
|Gold and Precious Metals|
|At a time when the market is going through the crisis of inflation, investing in gold seems to be the safest bet. This is because investing in gold is something you can never go wrong with, and the gold you purchase acts as an asset that can come to your rescue in the face of any unforeseen crisis. Investing in other precious metals such as palladium and silver, and investing in stocks of gold mining firms, are also safe investments.|
|Similar to investing in gold, investing in crude oil is also considered one of the safest investments during inflationary times. If you want to invest in crude oil or petroleum, you can do it through one of the investment vehicles such as USO, OIL and DBO.|
|If the domestic market is suffering from inflation, then it is wise to invest in markets abroad. You can either choose to invest in shares and equities, or in currencies of countries experiencing rapid growth and industrialization. Investing in such emerging markets, such as Brazil, will ensure that your money is safe. Also, by the time you get your returns, the economy of your country would have recovered from inflation.|
|Investing in technology is considered safe because irrespective of the market trends, this is one field that will experience consistent growth. The demand for advancements in technology is ever on the rise. Thus, you stand no risk of losing your money, investing in technology.|
|If you want to invest in properties and real estate, you can do so through the real estate investment trust (REIT). Investing through such investment vehicles can fetch you higher returns because it is a long-term investment, and the time period of investment would supersede the inflationary period. One of the good investments for 2012, the real estate market is currently witnessing a boom.|
|Investing in stocks during inflation can turn out to be profitable, provided you invest wisely. You should invest in stocks of firms that manufacture products that people are bound to buy. Pharmaceutical companies are a good example. Another good idea is to invest in stocks of firms that can boast of a cash-rich balance sheet. You can choose from an array of mutual funds to serve your purpose of investing in blue-chip stocks.|
|Treasury Inflation Protected Securities (TIPS)|
|The rate of rise of inflation is indicated by the consumer price index (CPI) and the Treasury inflation-protected securities are related to the CPI. The major benefit of investing in these securities is that they fetch you a compensating return on the rate of inflation. Managed by the government of the United States, these securities are one of the best investments during inflationary times.|
In addition to the investment options discussed above, you can also invest in inflation-indexed bonds, mutual funds and direct stock investments, among others. Hope these ideas help you in taking a wise investment decision. Irrespective of where you choose to invest your dollars, you should invest at the right time if you want your money to grow. Here's wishing you luck!