Is It Possible To Make A Profit From Inflation?

It is often seen that many retail investors looking out the ways to protect themselves against inflation or how to hedge against inflation but have given any thoughts on making profits from inflation?, Or is it possible? – To make profits from inflation. Warren Buffett always says “to become fearful when others are greedy and greedy when others are fearful.” But, instead, we don’t give much thought to the inflation. On the contrary, we start worrying over it and try to protect ourselves. However, we’ve never ever seen an “inflation bill” like electric bill, credit card bill or any other bill. Besides, when inflation comes it does not hit everybody in a similar way.

So, why don’t we try to man-up and face inflation head-on? After all, we’re in this market to make profits not hedge ourselves from every bump on the road. If you are an employee in a company, your net worth might increase next year but it won’t benefit you if it’s less than the rate of inflation. That’s why you need to learn how to make profits from inflation.

How to Make a Profit from Inflation?

If you are wondering, is it even possible… then yes!

It is very much.

No doubt! To some, inflation is very bad news but because they don’t know how to profit from inflation. Due to which, many rich millionaires fall down in the category of middle-class. And it is true!

For instance, the employees can only sell their precious time which by the way is not enough against inflation. Additionally, people who are under the credit card debts hit by inflation very hard. It is because the Reserve Bank of India generally increases interest rates to fight inflation. In fact, keeping money in the bank account is our foolishness. The bank is smart enough to use our money to make more money and pay interest which is far less than the rising inflation.

So, your very best strategy to make a profit from inflation is a hedge against it. If the history has anything taught us is that real-estate, gold, stocks, bonds, and oil investments worked really well against inflation.

Why does Real Estate work against Inflation?

The value of the property is directly proportional to inflation. With inflation, the number of tenants pays also increase over time. When that happens, the real estate properties can be used to generate more income to keep at the same pace with the rising inflation.

The real reason behind this is the ability to borrow with long-term fixed interest rate debt which outsources our monthly debt payments to tenants. So, why worries over paying loan when your tenants can take the burden for you?

Why do Gold Investments work against Inflation?

Gold is another popular inflation hedging strategy because of its direction in relation to rising inflation. Generally, when inflation arrives the price of gold also increases. It is not just the gold but other commodities such as silver and copper which rise in value when there is inflation in the stock market. This is why; it is advised to invest some money in commodity too. By keeping commodity in your investment portfolio one can take advantage of the inflation period and see rising in the value of gold.

Why Oil Investments Work against Inflation?

It is not just the real estate and gold but even the crude oil is in the list of financial assets or securities that rises in value with inflation. The increase in crude oil prices with inflation flows through to the price of petrol, diesel, gasoline and other products. The oil-based products used in transporting many goods and services through commercial vehicles and fuel personal vehicles to travel from one place to another. When the inflation period comes, the purchasing power of consumer reduced which lead to difficult to purchase goods and services which risen in value. So, it would be difficult to buy oil but if you are invested in crude oil then you can make profits from inflation.

Why Inflation-indexed Bonds against Inflation?

Interest Rates and bond prices have an inverse relationship. And when inflation comes the interest rates rise. When this happens the value of existing bonds decrease. So, such bonds worthless to the investors who are invested in it.

But, if you aren’t invested in bonds then inflation is the best time to make profits while investing in inflation-indexed bonds. One can purchase bonds with high-interest rates and low bond price in inflation times.