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As a moneymaker, you have worked hard to build your portfolio and want to see solid returns over time. However, during periods of high inflation your investments and returns can come under pressure.

Inflation reduces the purchasing power of your money and can undermine the growth of your capital and income over time. There are steps you can take to help secure your investments against inflation.

Choosing assets that tend to hold their value during inflation, investing in inflation-protected securities, and maintaining a balanced and diversified portfolio are some of the effective strategies to safeguard your investments. With prudent planning and the right investment choices, you can defend your portfolio from the erosive effects of inflation.

This article outlines some of the best ways to achieve inflation-protected investment returns.

Invest in Gold: A Hedge Against Inflation

To protect your investments during high inflation, consider investing in gold. Gold is a traditional hedge against inflation and holds its value well over time.

• Gold prices often rise with inflation. As the cost-of-living increases, gold also tends to become more valuable. This helps gold investors maintain their purchasing power even when the value of currency declines.
• Gold acts as a stable store of value. Gold prices are not very volatile compared to other commodities and equities. While the value of money may decrease substantially over months or years of high inflation, gold provides stability.
• Gold diversifies your investment portfolio. By investing in gold along with other asset classes like stocks and bonds, you reduce risk through diversification. When other investments decline in value, gold can potentially offset some of those losses.

There are several ways to invest in gold like buying physical gold bars or coins, gold ETFs, gold mutual funds, and gold mining stocks. Gold ETFs and mutual funds provide the most convenient options for most investors to gain exposure to gold.

The key is to invest in gold before inflation accelerates. Once high inflation sets in, gold prices have often already risen substantially. So, start building your gold investments during stable economic periods to take advantage of its inflation-fighting properties.

With prudent investing in gold, you can safeguard your wealth from the erosive effects of inflation and protect your purchasing power for the long run. Gold provides stability and security for your investment portfolio in times of economic uncertainty and high inflation.

Fixed Deposits: Low Risk, Stable Returns

To protect your money during inflation, consider fixed deposits. Fixed deposits offer stable returns at low risk.

Fixed deposits are savings accounts that lock in your money for a fixed period, from 7 days up to 10 years. Your principal amount remains the same, while the interest is paid out at a fixed, pre-determined rate.

Interest rates on fixed deposits are usually higher than regular savings accounts. The longer your money is locked in, the higher the interest rate. Fixed deposits are very low risk since your principal amount is guaranteed.

The interest earned on fixed deposits is taxable. However, there are tax benefits under Section 80C of the Income Tax Act on deposits up to Rs 1.5 lakh per year. Senior citizens get an additional 0.5% higher interest rate as well.

When inflation rises, the purchasing power of your money declines. But with fixed deposits, the interest rate you lock in will generate returns higher than the inflation rate, protecting your money's value.

Fixed deposits provide stable income and help your money retain value during inflation. By locking in an interest rate higher than inflation, your money works for you even when prices are rising. For a secure way to invest your money, fixed deposits are a reliable option.

Mutual Funds: Inflation-Indexed Funds for the Win

Inflation-Indexed Mutual Funds

To protect your investments from inflation, consider inflation-indexed mutual funds. These funds invest in inflation-protected securities like Treasury Inflation-Protected Securities (TIPS) that provide interest rates indexed to inflation.

As inflation rises, the principal amount invested in these securities also rises to match the inflation rate. This helps ensure that the money you invest today maintains its purchasing power during inflationary times.

Some key benefits of inflation-indexed funds include:

• Principal protection: The principal amount of your investment is indexed to inflation, so it keeps up with rising prices. This protects your money from losing value.
• Tax-advantaged income: The interest earned on TIPS and other inflation-protected securities is tax-deferred until maturity. You only pay taxes on the income when you withdraw money from the fund.
• Low volatility: Inflation-indexed funds tend to be less volatile than typical bond funds because the principal is adjusted for inflation. So, the net asset value of the fund remains relatively stable.
• Diversification: These funds provide diversification for your portfolio by investing in inflation-protected securities. This diversification can help reduce overall risk.

To invest in inflation-indexed mutual funds, you have a few options. You can invest in funds that focus specifically on TIPS or broader inflation-protected bond funds.

Inflation-indexed mutual funds are a prudent way for investors to help safeguard their money during times of rising prices. By allocating a portion of your portfolio to these funds, you can ensure your investments keep up with inflation over the long run.

Staying invested in the market is the best way to achieve solid returns, so take steps to protect your money from losing value due to inflation.

Conclusion

As you have seen, inflation poses a real threat to your investments and financial well-being. However, with prudent planning and by taking appropriate measures, you can safeguard your money during inflationary times.

Diversifying your portfolio across asset classes, choosing inflation-protected investment options, and regularly reviewing and rebalancing your investments are some of the effective strategies to hedge against inflation.

While inflation is an economic reality, it need not diminish the value of your hard-earned money and long-term financial goals. By understanding the causes and effects of inflation and implementing suitable investment strategies, you can continue to prosper and achieve your financial objectives despite rising prices.