Given the current inflation rate investors are looking for ways to beat inflation, the traditional 60/40 stock-bond portfolio may no longer provide the same level of growth or yield as it did in scenarios with lower inflation. So there is a need to think outside the box and find new investment ideas to help deal with inflation and grow the capital.
Real Estate And Infrastructure To Beat Inflation
Real Estate Investment, via REITs, DST’s and Reg D offerings:
Real estate often acts as a natural hedge against inflation. Investing in incoming product, which offer income through dividends from property-related income, could see benefits from rising rents and property values. Real estate investing through REITs, DSTs, and Reg D offerings is like owning a vineyard with a built-in pricing advantage. As inflation rises, the cost of wine and grapes naturally increases, boosting the vineyard’s revenue without requiring more land or resources. Similarly, real estate investments generate income that often rises with inflation, providing a built-in hedge and steady returns.
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Infrastructure: Investments in infrastructure, particularly in areas like renewable energy or transportation, can offer inflation-linked returns due to long-term contracts that adjust for inflation. Investing in infrastructure is like planting a fruit tree with a guaranteed buyer for your harvest. Over time, as inflation increases, the price of fruit rises, and your contract ensures that your investment inflate along with it.
Private Equity and Venture Capital:
Companies in private equity tend only to buy companies when they have a game plan on how to turn the company around. Because of mergers and bankruptcies, there are not as many public companies as there used to be. Private companies could be more nimble to pivot and have more pricing power in a higher inflation environment, potentially leading to higher valuations. Private equity deals could become more attractive as firms leverage operational efficiencies, implement AI, and/or increase growth in niche markets.
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Private equity is like renovating an old house—investors buy a property with potential, make significant improvements, and then sell it for a higher price. Venture capital, on the other hand, is like planting a seed in a promising but unproven soil—investors provide funding and nurturing in hopes that the seed will grow into a thriving tree.
Venture Capital: Tech and health tech startups continue to attract investment. With inflation, companies that can scale quickly or have strong IP might find themselves at an advantage, offering high growth potential for venture capital investors. This article will help assess the viability of a startup.
Commodities And Natural Resources To Beat Inflation
Commodities like gold, silver, and industrial metals can protect against inflation. Gold, traditionally seen as a safe haven, might see increased demand. Meanwhile, copper and other metals critical for technology and energy could benefit from supply constraints and rising demand.
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Cryptocurrency and Digital Assets:
While volatile, cryptocurrencies, especially Bitcoin, have been discussed as potential inflation hedges due to their limited supply. Institutional interest continues to grow, potentially stabilizing the asset class over time. Moreover, investments in blockchain technology across various sectors could yield innovative returns.
Private Credit:
As banks tighten lending in an inflationary period, private credit funds could step in, offering loans with higher yields. This sector could become a significant part of a diversified portfolio, especially if interest rates remain or increase.
Strategies In Action To Beat Inflation
Diligence: Alternative investments are often less liquid and more complex, so due diligence is paramount. Understanding the underlying assets or businesses is crucial.
Allocation: Start with a small but strategic allocation to alternatives, adjusting based on personal risk tolerance and investment goals.
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Advisors: Work with investment advisors who specialize in alternatives to navigate this landscape effectively.
Alternatives offer diversification and the potential for returns that can outpace inflation. While not without risks, these investments can play a pivotal role in a well-rounded portfolio that might just beat inflation, especially in times when traditional investments might underperform due to inflationary pressures.
Securities are offered through Arkadios Capital. Member FINRA/SIPC. Advisory services are offered through Creative Capital Wealth Management Group. Creative Capital Wealth Management Group and Arkadios are not affiliated through any ownership. This material was created for educational and informational purposes only and is not intended as tax, legal or investment advice.
