How to Profit from Inflation: Part 3


In the past couple of weeks, we started talking about trends to be aware of during times of inflation. Another aspect to think about is that fixed-income investments tend to suffer when inflation accelerates. When inflation rises, interest rates also tend to rise. Existing bonds become less attractive to investors when the interest rates increase. However, new bonds are priced to take current interest rates into account.

One way around this is investing in bonds indexed to inflation:

  1. Treasury Inflation Protected Securities are an example of such an investment. This investment vehicle is tied to the consumer price index. The value of the investment rises to match inflation.
  2. The value of the bond not only rises in value with inflation, but it also pays interest on the base value of the bond. The interest payment increases with inflation, which increases the underlying value of the bond if you ever choose to sell it.
  3. There are other inflation-indexed bonds available. Many other countries have similar investments.

Not many investors are aware of inflation-indexed bonds, but these bonds can be an excellent tool for those seeking reliable investment income.

Thanks for reading! We’ll be back with a few more tips on investing during inflation soon.

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