Provided by IMC! Peer Mentor: Cole Greco
As I am sure many of you are aware, there has been a consistent topic trending in news over the past year, that topic, inflation. At a glimpse this term can seem daunting and hard to comprehend, however, it is important to understand and can determine your financial well-being. With this post, I hope to increase comfort levels with inflation and hopefully get you a head start on ways to combat it.
To begin, what is inflation? At a high level, inflation is essentially the increase in prices and the decrease in purchasing power of money. Normally, inflation is heathy, it keeps our economy moving forward incentivizing individuals to spend now. However, recently we have seen a period of alarming inflation rates. Over the course of one-year inflation has had a 6.1% increase, much higher than the benchmark of roughly 2%. This has directly affected markets that we use every-day as college students like; groceries, gas prices, rent, utilities, and even the used car market. While it seems like inflation is inevitable, there are a few tips that can help you grow your money alongside price increases.
Invest, Invest, Invest.
The only true way to beat inflation is to have your money create a higher return than that of the inflation rate. With that said, in order to create a return, investing is unavoidable. I know as college students it is difficult to find extra money to make investments, however, it is important to set a plan and stick to it. With financial markets now at our fingertips with apps like, Robinhood, WeBull, Acorns, and Coinbase it is easier now than it ever has been. Whether it is $10 or $500 each dollar can go a long way. At It Make$ Cents, we can help you establish a plan, an aid your investing journey.
What Should I Invest In?
During periods of inflation there are certain asset classes that are better at hedging its affects than others. Typical stocks may not be your best bet. Instead, I will talk about two investment instruments that can aid in your battle against inflation.
1. REITs (Real Estate Investment Trusts)
A REIT is essentially a company that owns and operates a portfolio of income producing real estate. With price increases in rental markets, companies that hold those properties are likely to see increased income, ultimately growing your return.
2. S&P 500
Companies that typically do well in times of inflation are ones that require little capital. The S&P is filled with Technology and Communication Services companies which usually require small amounts of capital to operate. This usually makes the S&P a good bet against inflation.
Stay in the Loop.
It is important to stay up to date on what is going on with government policy and different macroeconomic trends. This will allow you to make informed decision while investing. Great resources for this can be platforms like The Wall Street Journal, Yahoo Finance, and Bloomberg Newsletter. These are offered in podcast and newsletter format to complement the needs of each listener. Also, email subscription services like The Morning Brew and Bloomberg's Evening Briefing.
All in all, inflation is a systematic risk and very difficult to mitigate. It is important to stay as up to date as possible and invest when you can. Remember you can never do too much research when making decisions with your money!
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