How to Profit from Inflation: Part 1

Welcome to our next blog series! If you haven’t noticed… we are in a period of significant inflation, so we thought we’d share some content on the topic. Inflation is generally painted as a bad thing. Inflation is a sustained rise in the price of a specified basket of goods that includes many commonly purchased items. Just ask your parents how much a loaf of bread cost 40 years ago. Can you believe a corvette was around $5,500 in 1973?

Prices have risen a great deal over the years. Rising prices have a negative effect on consumers, but inflation can be very profitable for investors who know how to take advantage of it.

Inflation erodes away at the value of a country’s currency. Over time, you’ll be purchasing less. While experts frequently argue over the causes of inflation, an increase in prices is the net effect on both consumers and investors.

The trick to making money during inflationary periods is to invest in things that increase in value at a rate that’s greater than the rate of inflation.

Consider these trends during inflation:

  1. Investors are more likely to purchase gold during times of inflation, which drives up the price. The price of other precious metals also tends to rise. However, gold tends to get the most media attention.
  • Remember that gold has minimal use in the industrial world. Also realize that there’s more gold being stored than could ever be used for any practical purpose. The value of gold is primarily determined by the urge of investors to own it.
  1. The price of oil moves with inflation. The price of oil affects the cost of gasoline and many other goods. Remember that many goods are transported by vehicles that consume gasoline. Oil is attractive to investors because it has an impact on so many other products.
  • Some goods, such as corn and other crops, require fuel for processing. Oil is also used in the production of many other materials, such as plastics. 

You’ll notice that many other commodities like orange juice and cotton also rise in price when oil becomes more expensive.

And we’ll be back with more trends soon! Let us know what you think of this series and how you’re doing in this time of inflation.

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