Kavan Choksi
High inflation lowers the value of money and may impact the purchasing power of a person negatively. Moreover, the rising prices of food and greater interest rates on loans can slow down economic growth. This leads to an unstable stock market. As Kavan Choksi says, with the appropriate investment advice, people can effectively protect the value of their money and even earn improved returns on investment in an inflationary environment.
Kavan Choksi discusses a few ways that can be useful in enabling people to prepare for inflation
Alternative investment instruments like precious metals and real estate are considered to be dynamic assets. They provide a stable return on investment and lower volatility in comparison to traditional assets. Alternative assets can provide good inflation protection and relatively stable investment returns even as inflation rates go up. Developing a diversified investment portfolio is considered to be among the best wealth management strategies for protecting money if the financial markets crash. There are many important points that one must keep in mind when trying to create an inflation-proof investment portfolio, including:
- Ensure to include a mix of growth bonds, stocks, mutual funds, commodities, and real estate in the portfolio
- Select investments with diverse levels of risk and rates of returns that allows people to cope with the growing inflation rates
- People must evaluate their personal finance goals at least a couple of times a year and makes critical changes to keep up with the climbing prices
As the inflation rate goes up, people would notice a price increase in consumer goods and services. This would lead to the diminished value of money over time. Hence, it is not a good idea to hold cash during inflation. Rather, people must try to put all of their excess cash in investments like alternative assets, growth stocks, and real estate, in order to enjoy higher returns than the inflation rate.
As Kavan Choksi says, people should consider avoiding investing in long term fixed income securities to effectively handle the effects of inflation. The purchasing power of the total interest earned diminishes with high inflation, as long-term fixed-income securities provide a fixed interest rate until maturity. For instance, if a person has invested in a bond at a fixed interest rate of 4% and inflation goes up to 3%, the actual return on the investment will be only 1%.
Good idea to refinance credit card
For people who have an existing mortgage or loan with a variable interest rate, it would be a good idea to try switching it to a fixed rate. The central bank raises interest rates during inflation. The interest payments of a person will go up, if they have a variable interest rate debt. Moreover, in a high inflation environment, it would be a good idea to refinance credit card debt with a lower fixed-rate loan to reduce the money one has to pay as total interest.
As the Federal Reserve increases food prices and interest rates amid inflation fears, it becomes important for people to review their personal finance goals from time to time and find ways to spend less and save more. They may even consider cutting back on unnecessary expenses like international vacations, streaming services, and eating out, to cope with high inflation. A business may even lay off or furlough unnecessary staff, but this should be considered to be the last resort due to moral reasons. Proper inventory management is important to avoid tying up cash in excess inventory. Businesses must try to optimize inventory levels based on demand projections to make sure that they have the right amount of stock to meet customer needs without holding excessive quantities.
