3. Diversify with Real Assets
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Real assets, such as real estate and commodities, tend to perform well during inflationary periods because their value often rises along with the cost of goods and services. Investing in real estate, whether through direct property ownership or real estate investment trusts (REITs), can provide both an income stream (through rent or dividends) and potential appreciation in property value. Commodities like gold, silver, and agricultural products also tend to maintain their value during inflationary periods, making them attractive options for diversification.
4. Maintain a Balanced Portfolio
While it’s important to invest in assets that hedge against inflation, maintaining a balanced and diversified portfolio is still essential. Having a mix of stocks, bonds, real assets, and even some cash ensures that you’re not overexposed to any one asset class, which can be risky if inflationary trends suddenly shift. Regularly rebalancing your portfolio to maintain your desired asset allocation will help you stay on track, minimizing risk and maximizing potential returns.
5. Reduce Exposure to Cash
Holding too much cash during inflationary periods can be detrimental to your financial health. Inflation erodes the purchasing power of cash, meaning that over time, the same amount of money will buy fewer goods and services. While it’s essential to have an emergency fund, consider limiting your cash reserves to three to six months of living expenses. The rest of your savings can be invested in inflation-resistant assets to preserve its value over time.
