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How to Profit From Inflation
Investing Basics
December 14, 2022

How to Profit From Inflation

While you were planning your European getaway this past summer or buying your weekly groceries, there’s no doubt you must’ve noticed the prices have gone up. No, it’s not because you’re traveling in high season or buying niche products; it’s because of inflation. In other words, your buying power is worsening by the day, and the things you used to buy now cost you more.

And here’s the thing, we don’t know when the rise in prices of goods and services will stop. So, how can you react financially? As a consumer, you respond by avoiding making big-ticket purchases like a car or a tv. However, as an investor, you’re more focused on how to avoid losing money in the market. 

Key Takeaways:

  • Many asset classes perform well during periods of inflation; leave the decision-making to the BOTS app
  • There are three main ways to track inflation: CPI, PCE, and PPI
  • Tangible assets, including real estate and commodities, have been historically considered hedges

What is inflation?

If you know what inflation is, skip this part and keep reading. But if you’d like a refresher, let’s do a quick rundown on inflation. Inflation is when there’s an increase in the prices of goods and services. While inflation around 2% is a positive sign of growth and is encouraged by countries, once it passes that threshold, it can damage the economy by decreasing consumer buying power. 

How to track inflation

Understanding how to track inflation can help you make better investment decisions. The most common way economic reports measure inflation is via Consumer Price Index (CPI), the Personal Consumption Expenditures Price Index (PCE), and the Producer Price Index (PPI). So how do these methods differ?

How inflation affects asset values 

While we wish there was a one-size-fits-all answer to how inflation affects asset values, it can be unpredictable. However, we can use our past economic history to measure what will happen during this period of inflation. Let’s look at which assets perform well under inflation and which assets it’s best to avoid.

It’s important to note that many investments have historically been considered hedges (protection) against inflation. These hedges include commodities, real estate, and specific stocks and bonds.

#1 Real Estate

Real estate is a popular asset to invest in as it can store value during inflation while generating income through rent. During inflation in the 1970s, real estate fared very well. However, rising interest rates, such as the ones in 2007-2008, can create vulnerability in the market.  

#2 Cryptocurrencies

Cryptocurrency is not currency, meaning it doesn’t respond to inflation the same way a foreign currency would. Because of this, cryptocurrency can act as a counter-inflationary asset. Investors may want their cash in Bitcoin or other cryptocurrencies to preserve their spending power. Investing in crypto has also become easier with trading platforms like BOTS.

The BOTS app offers a wide range of trading bots in crypto, stocks, real estate, durables, and more to help investors grow their capital during times of inflation. Using the BOTS app, you’ll have access to the low-risk 6.75% Savings bot, giving you a return of 6.75% per year. And instead of high-yield savings account, the high-fixed Stake & Make bot will reward you with a 9% return annually. You can find all of them in the ‘Earn’ tab of our app.

Download the BOTS app if you don’t already have it.

#3 Commodities

When inflation increases, investors usually center their focus on tangible assets that will potentially increase in value, such as gold, precious metals, agricultural products, and raw materials. 

#4 Bonds

Many people may see investing in bonds as counterintuitive, as inflation is known to damage fixed-rate debt. However, inflation-indexed bonds offer a variable interest rate connected to the inflation rate.

#5 Stock

Stocks have been historically known to keep up with inflation, but not all stocks respond equally. Investors interested in stocks should pay attention to companies that can shift the rising costs to consumers.

#6 Loans/Debts

Depending on the type of loan, it interacts with inflation differently. For example, leveraged loans fare well during inflation as the banks can raise the interest rate charged to ensure the return on investment (ROI) keeps up with inflation. 

Pros and cons of investing for inflations

There are always pros and cons to investing during inflation; let’s take a look at them now. 

Pros

  • Diversify portfolio
  • Preserve buying power
  • Protect current portfolio 

Cons

  • Overweight portfolio in some asset classes
  • Increase exposure to risk

Final thoughts on how to profit from inflation

While consumers tend to stop spending during inflation, as an investor, this could be a great opportunity to preserve your buying power and protect your portfolio. Investing in the right asset classes can diversify your portfolio and beat inflation.

Disclaimer: 

This blog is for educational purposes only. The information we offer does not constitute investment advice. Please always do your own research before investing. 

Any views expressed in this blog and by BOTS do not constitute a recommendation that any particular cryptocurrency (or cryptocurrency token/asset/index), portfolio of cryptocurrencies, transaction, or investment strategy is suitable for any specific person.

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