Inflation fears are growing in Canada. Food costs are rising, house prices are through the roof, household savings are up, and there’s a lot of concern that as pandemic-shut industries open up, the economy is going into overdrive.
High inflation can ruin your savings and put your goals further out of reach. You need an investment strategy that can adapt to the economic situation.
In high-inflation environments, there are several types of assets that can help you stay ahead of the game:
- High-growth assets like shares;
- Variable-interest rate assets that may rise as inflation does;
- Real assets, i.e., tangible things you can own, such as commodities and alternative investment.
The rising cost of commodities is part of what causes inflation, so investing in them can help you keep your head above water.
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#1 Gold
Gold is considered one of the safest assets you can use to beat inflation, largely because of its complicated history with currency.
Whereas other commodities like copper, aluminum, lumber, or oil might be good bets because they are in demand, gold is considered a safe haven alternative to cash-in-hand. Gold was money was before fiat currency become the global standard. The transition to fiat currency didn’t happen quite so long ago in the grand scheme of things, and investors still have faith in gold.
As inflation fears mount, you may want to convert some of your cash savings. When you buy gold in Canada, it’s not much different than any other kind of investing. You can even buy gold as part of your RRSP.
High demand for gold has persisted over the last year and a half, and many predict that the short contracts keeping prices down are set to expire. Inflation fears have kept gold an attractive asset for the near future.
#2 Stocks
While gold is an alternative to cash savings during inflation, the other strategy for beating inflation is investing in a high-growth asset. Stocks are used as the primary engine of savings growth in your portfolio.
High economic growth can go hand-in-hand with inflation. The costs of things go up because people have more money to spend, which could also mean positive stock market growth.
#3 Real Estate
In Canada, inflation is calculated using the consumer price index (CPI), an average measure of the price of consumer goods and services. It includes things like groceries, travel accommodations, utilities, transportation, recreation, and shelter.
Shelter accounts for 26.8% of the CPI, including rent, mortgage interest cost, and utilities, but not the cost of buying a home. That’s because home equity is an asset.
This is where there can be major discrepancies between lived experience and the average experienced calculated by the CPI. Someone who paid off their mortgage five years ago is going to have a much different experience of living expenses than a first-time homebuyer.
While there are some investors who see Canada’s housing market as a bubble, others see strong fundamentals and no change in sight. Restrictions on urban development and unexpectedly high population growth in key markets mean Canada has the fewest housing units per capita in the G7.
Inflation eats away at your savings. You need to put your money into assets that will rise above inflationary pressures.
