Every day in the news, there’s a report about the impact of inflation on our daily lives. The price of everyday items like food, gas, and other necessities is rising almost as fast as the price of luxury purchases.
There are a variety of reasons why inflation has risen sharply over the past couple of years, from geo-political events affecting energy and food production, a decrease in available supply-chain items, a recent influx of discretionary income due to various government stimulus programs, and the historically low-interest rates that preceded inflation.
What Does Inflation Mean For Investors?
For investors, inflation brings uncertainty to the market, and uncertainty in the investment markets can cause volatility, causing swings in the value of stocks.
There are hedges to consider against the traditional stock market and index fund when investing in your future.
Diversify Your Portfolio
One of the most common pieces of advice given in investment circles is diversifying your portfolio. Your investments should cover a broad range of assets, from traditional stocks and savings to more alternative options.
These alternative investments are more and more popular as investors look for ways to diversify their portfolios.
In 2023, alternative investments are expected to become a more common part of everyday investor portfolios. As an alternative to traditional assets, these investments offer a low correlation, which can help reduce volatility and improve returns.
Previously, these alternative investments were only available to accredited investors; now, a wider selection of low-cost exchange-traded funds (ETFs) and mutual funds make it simpler for individual investors to utilize these strategies.
Diversifying your portfolio is vital to reduce your risk of volatility and losing your investments. In addition, by spreading out your assets, you reduce the possible impact of any one sector or market damaging your overall portfolio.
Safe Alternative Investing Opportunities
When diversifying your portfolio, consider a wide range of financial instruments, such as investing in stocks, bonds, mutual funds, ETFs, or other options such as real estate, cryptocurrencies, or commodities.
Thinking about diversifying your portfolio into alternative investment options, you should consider some or all of the following;
- Government Bonds
- Mutual Funds
- Real Estate Investment Trusts
- Real Estate
Government Bonds: Government bonds are prone to make a comeback in 2023 and are an investment option for diversification that protects a portfolio.
When you purchase a government bond, you’re essentially loaning the government money used to pay off U.S. debt or fund infrastructure spending. You won’t get paid a high rate of return, but your money is safely stored and guaranteed by the US Government, making it a fixed-income security.
This makes them an attractive option for risk-averse investors seeking fixed income and less volatility in their portfolio.
Real Estate Investment Trusts, or REITs: Real estate investment trusts, or REITs, are an excellent option for investors who want to capitalize on real estate without having to put a lot of cash into the investment or manage a property themselves.
An investor joins a REIT, puts a certain amount of money into it, and collects dividends equal to their shares. These dividends often deliver above-average returns, as 90% of the income generated is required by law to be funneled back to investors.
REITs are an attractive option for those looking for safe high-yield investments. For those looking for a more passive way of investing in real estate, REITs are worth considering.
Real Estate Investing: Real estate investing is an attractive option for those looking to make a long-term investment with the potential for high returns. Real estate is known to provide stable value in the long term if appropriately managed, and its value can even increase when inflation is high.
There are various ways to get into real estate investing, from traditional transactions like purchase and hold to more recent creative ways of flipping real estate contracts.
- Buy and Hold
- Fix and Flip
- Rental Units
- Flipping Contracts
Most real estate will require some capital investment like a down payment or financing, but with flipping contracts, known as wholesaling, there’s a minimum capital required to participate. Basically, the wholesaler brokers a deal between a motivated seller to a secondary buyer for a slight markup.
If you’re in California, Texas, or most other states, wholesaling is legal, but the regulations and rules for transactions vary from state to state, so be sure to know the local laws. You can do a simple Google search for terms like how to wholesale real estate in Texas or how to flip real estate contracts in Georgia.
Wholesaling in a place like Texas is excellent because of the lack of state income taxes, further improving your return on this type of investment.
Cryptocurrencies: Fueled by the FTX controversy, cryptocurrencies had a rough year in 2022.
Despite this, it is easy to argue that 2023 will be a better year for crypto than 2022.
Cryptocurrencies like Bitcoin, Ethereum, and others have taken a dip recently, but due to the FTX debacle, the US Government is poised for action.
There are significant developments expected in cryptocurrency regulation from Washington D.C., such as the Fed’s 12-week central bank digital currency (CBDC) proof-of-concept project launched in mid-November.