Inflation is a global issue at the moment, and every country is dealing with the fallout from financial pressure with different levels of success. Individuals concerned with wealth generation are also scrambling to react to the circumstances.
One way to stay a step ahead of inflation is by effectively building wealth. This can ameliorate monetary shortcomings in the short term. It can also position an individual’s investment portfolio for accelerated growth when inflationary pressures ease in the future.
1. Start With Some Perspective
It’s easy to feel blinded by emotions when inflation is in the conversation. This can lead to skewed perspectives and irrational decisions.Wealth Woman warns against giving (or receiving) financial advice in a vacuum. The strategic financial planning firm adds that simply doing what your neighbors or friends are doing is risky.
In spite of the emphasis on independence in America, freedom doesn’t always translate to wealth. In fact, for the majority of Americans, real wealth is a pipe dream. That means they’re working with limited resources. When that’s the case, crowdsourcing financial information and coming up with generic or formulaic advice is a bad idea.
Instead, it’s important to start by taking a big step back. Consider your entire situation. What are your existing assets? What is your income? Do you have passive income yet or is it all still effort-dependent? Will you need to redirect existing investment funding to cover basic living costs as inflation rises?
2. Address Your Budget
It’s difficult to invest wisely when your day-to-day activities don’t line up with your (hopefully) savvy investment moves. That’s why, before looking into major investment opportunities, it’s a good idea to start by reviewing your own budgetary activity.You don’t need to create a penny-pinching or air-tight budget to be a good investor. In fact, there are many different kinds of budgets that can suit different needs. The important thing is that you approach your basic personal finances with a thoughtful and industrious mindset. If you can do that, it can set the tone for calculated investing, too.
When it comes to the inflation part of the equation, there are certain things you can do to adjust your budget with rising costs and a weakening dollar in mind. AllCom Credit Union suggests starting by tracking your spending. This will give you a good idea of where your money is going.
From there, assess needs versus wants. That way you’ll know what items can go if money gets tight. In addition, the financial company recommends basic personal finance activities, such as buying in bulk and purchasing well-made or reusable goods.
3. Learn to Set Serious Financial Goals
It’s fun to daydream. It’s also great to think of possibilities and best-case scenarios for your financial future. If you want to create an effective wealth generation strategy when inflation is on the table, though, you need to consider how to set realistic goals, especially those that can remain viable in a hostile financial environment.- Specific;
- Measurable;
- Achievable;
- Relevant;
- Time-Bound.
4. Protect What You Already Have
Alright, it’s time to get into the nitty gritty elements of wealth generation when inflation is a factor. Step one is considering the investments that you already have on the table.If you have some skin in the game, what steps can you take to minimize the impact that rising prices and a disrupted investing environment could have on your current assets?
- Shifting your investment allocation depending on your needs, such as moving more funds to dividend-paying stocks;
- Studying what drives the market value and investment opportunity with each asset that you consider;
- Diversifying investments to mitigate risk; and
- Identifying entities that can rise with inflation, such as real estate, mortgage-backed securities and treasury inflation-protected securities.
5. Don’t Be Drastic, but Take Risks
We’ve already touched on the idea of avoiding emotional investment decisions earlier, but it’s worth reiterating.It’s important to carefully think through every investment decision that you make. Inflation can be scary, and it’s easy for something like a sudden market shift or a rate hike announcement to spook investors.
At times, a rational response to movement in the market is warranted. But you should never act first and think later.
6. Think About the Right Kind of Investments
The kind of investments that you choose can change during inflationary periods. For instance, CNBC recommends focusing on long-term investments that have a good chance of paying off regardless of the effects of short-term inflation.One of the best ways to do this is to look past vapid dollar valuations in volatile markets. When inflation discomforts investors, stocks that were previously valued very high can often be directly impacted.
When the market undervalues a quality company, it can offer an excellent long-term investment opportunity that can beat any negative effects of inflation over time. Just remember to always study the quality of a company, not its stock, before you choose to buy.
Another, more subtle wealth generation option that can deliver in spades is a direct investment in your individual career and earning potential.
7. Stay Flexible at All Times
It’s difficult to talk about things like staying the course and investing long-term and then in the same conversation discuss staying flexible. And yet, the two concepts must co-exist if you want to generate wealth in an inflationary environment.The important thing is to avoid misconstruing flexibility with financial activity. Remaining flexible as you generate wealth doesn’t mean you should be shifting money between accounts every day or buying and selling investments every few weeks.
- Avoiding holding cash for extended periods of time;
- Delaying Social Security benefits; and
- Diversifying investments by shifting to inflation-resistant options, like real estate.
However, there are times when change is the right choice, like if you’re still settling on a solid investment strategy.
Building Wealth, Regardless of Your Circumstances
Overcoming unexpected challenges, like those posed by runaway inflation, isn’t anything new. It’s an issue that investors have faced in the past, and they’ll continue to do so at times in the future.The important thing is that investors come up with sound, personalized wealth generation strategies. When done right, this can maximize your chances of not just surviving but thriving in an inflationary environment.
From gaining perspective and addressing personal budgets to protecting existing assets, diversifying and staying flexible, make sure you have a dependable strategy in place. This can help to guide your investment decisions as the country—and the world—continues to grapple with inflation and all of the financial hurdles that it presents.