Does high inflation have you concerned? The rising cost of groceries, gas, and other essentials is hurting many Canadians and their budgets, but it also has many worried about their retirement savings and investments.
When the cost of goods rises, it eats into your investment gains. If you’ve invested in GICs (Guaranteed Investment Certificates) or low-interest bonds, you can end up losing money in the long run, especially if inflation outpaces the interest rates on them. Meanwhile, cash savings such as an emergency fund lose value every year.
Not only is inflation a measure of how much prices are rising, it’s also a measurement of how much less currency is worth. Think of it like this: if inflation is at 5% per year, and you have $10,000 sitting in a no-interest bank account, it’s like your savings are losing $500 per year.
While it’s still useful to keep an emergency fund of cash available, you may need to put your money elsewhere to prevent losses to inflation.
These are the top investments when you’re concerned about the effects inflation will have on your savings.
#1 Silver and Gold
Silver and gold are often used for long-term wealth preservation. Bullion has a historical record of keeping up with inflation, even though these aren’t assets that generate interest or produce anything new.
It’s the safety and security that silver and gold provide that make it an appealing investment for long-term wealth preservation. While the year-over-year performance of bullion against inflation may vary, it’s generally accepted that gold has maintained its purchasing power compared to most common goods over hundreds of years.
Silver has seen greater price fluctuations, but it also has more industrial demand and is commonly used in electronics and renewable energy. As commodity demand increases, buying silver in Canada may offer more growth than gold.
Bullion should by no means be your only investment to beat inflation, but it’s an excellent asset to help build a defensive strategy.
#2 Real Estate
The next asset to consider is real estate. Hard assets, like commodities and land, tend to benefit during high inflation. As the value of the currency decreases, finite resources like land increase in value.
However, this comes with a big caveat. First and foremost, real estate investing comes with a significant capital cost. The other is that the Canadian real estate market has seen record price increases, and many worry that a market correction is just around the corner.
#3 Companies That Can Raise Prices
One of Warren Buffett’s favourite tactics for beating inflation is investing in companies that can raise prices. That often means companies where demand is relatively fixed, including consumer goods such as:
- Groceries
- Gas and other utilities
- Transportation
Any industry where people have little choice but to go along with higher prices will come out on top during periods of high inflation. While inflation is usually a sign of economic growth, it can also curtail spending as people take more care in managing their budgets. Optional expenditures are the first to go before major lifestyle changes.
