In this article we are deliberating upon the investment strategies when there is an inflationary economy.
When inflation is high, it is better to liquidate investments in debt instruments like fixed deposits and income funds, and divert funds to equity. Equity is the only hedging you have against inflation.
If you must make fixed deposits, donâ€™t lock in your money for longer tenures.
It is better to invest in liquid funds and floating rate funds. Park money in fixed maturity plans.
Invest in commodities because commodity prices tend to go up in an inflationary economy. This is also the time to think of gold; it tends to do well in extreme financial turmoil.
It is not wise to cut down on your investment because of higher cost of living. You should try all other ways before cutting down on your long-term investment like equity, which is the only bet you have against inflation. The best solution is to increase your income if you can and reduce unnecessary expenses.
Cut down unnecessary expenses. It may sure sound inappropriate as every investor feels he or she do not have any unnecessary expenses. The facts that may be in for a few surprises most of the people indulge in things, which are not necessary. For example eating out, going for movies etc. The moment a family goes out the expenses will be higher than one expects satisfying the wants of children and other dependent family members including older parents. If one makes a list of monthly expenses and start crossing out things that one can do without, you would be surprised to find that he or she would save quite a bit of money. But that is why we all have a miserly uncle or aunt in our family who has a lot of money.
Please note, nobody is suggesting that you lead n austere life. Find out interesting alternatives. For example, cut down on your weekly visit to the multiplex, but rent a movie from the neighborhood shop. Or instead of eating out, make something special at home. All you have to do is to be imaginative and you will find your way out.
Increase your income:
This one may sound less practical but people in business can make more money. All one has to do is to work a little extra. However, for the salaried-class this option is not available. But financial experts say, even salaried people can increase their income by taking up a new job or taking up additional part-time jobs.
Most people know they can earn extra if they switch jobs, but they donâ€™t do it because they donâ€™t want to leave their comfort zone. Another way out is to find a part-time job for a spouse who quit working to take care of the family, says expert.
Liquidate your debt investments:
According to an expert instead of derailing oneâ€™s investment plan, he should try to liquidate your debt investments. When inflation is rising we may start earning negative returns on our investment in debt instruments like fixed deposits and income funds. It is better to liquidate them instead of abandoning your investment plans.