Kavan Choksi Professional Investor Lists a Few Investments That Can Help Combat The Impact Of Inflation

Over the last few years, the consumer price index has been increasing at a rate not seen for nearly four decades. Hence, now would be a good time for investors to explore ways to generate real returns during inflation. As Kavan Choksi Professional Investor mentions, traditional inflation resistant assets tend to include commodities, real estate, as well as consumer cyclical stocks. Semiconductors and infrastructure-related investments can also perform well during this inflationary cycle. Growth stocks, bonds and cash, on the other hand, appear to be relatively less attractive in the current environment.

Kavan Choksi Professional Investor lists a few investment options to explore during inflation

As per Consumer Price Index data, inflation rose by 8% monthly, on average, throughout 2022. This was the highest figure since 2000. Even though inflation rates did ease during 2023, there still are multiple categories that have high inflation in 2024. Inflation tends to erode the purchasing power of cash, as well as depresses returns on bonds. This poses a challenge for investors trying to protect their portfolios and stay on track toward their financial goals. Here are a few investments that can help investors to combat the impact of inflation:

  • Equities: Equities can provide a reliable haven during inflationary times, as historically stocks tend to produce total returns that exceed inflation. There are certain types of stocks that fare better than others in terms of fending off inflation. Equities of small-cap, consumer products, dividend growth, as well as energy and emerging markets companies can be ideal for investing in.
  • Real estate: Properties are a tried-and-true inflationary hedge. Residential real estate is especially considered to be a safe haven. People can also choose to invest in Real estate investment trusts (REITs), public companies that own real estate or mortgages. They provide a way to invest in real estate without actually buying properties.
  • Commodities (non-gold): Investment in commodities can be a powerful inflation hedge. Among other things, commodities traders generally purchase and sell oil, natural gas, grain, and coffee. Investors may opt to direct portions of their portfolios into commodities with the help of futures contracts as well as through investments in exchange-traded funds.
  • Treasury Inflation-Protected Securities (TIPS): As CPI rises, these government-backed bonds increase in value, thereby lowering inflation risks. Over the last few years, the price of TIPS ramped up sharply along with the inflation
  • Savings bonds: Several inflation avoiders tend to turn to savings bonds. These bonds are directly sold to the investors by the United States Treasury. Savings bonds are known to be safe investments as their value cannot decline. Therefore, they are a stabilizing investment during inflation or other periods of uncertainty.

As Kavan Choksi Professional Investor says, even though a number of investors do find the inflation hedges underlined above to be valuable additions to portfolios during inflationary periods, they are not always right for every investor. It is critical that each and every investor carefully considers individual goals, time horizons and risk tolerance prior to making any investment decision.