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Making Investments in a Time of Soaring Inflation

Making Investments in a Time of Soaring Inflation

More than a year ago, we began cautioning our readers about growing inflation; now that it has arrived, what can be done? What types of investments do well when prices rise due to inflation, and what types do not?

You should try to save money for things that won’t depreciate as quickly in value and avoid portfolio management that can’t keep up with inflation. When it comes to investing, seasoned pros frequently choose real estate. The category of cash reserves stands out as one that should be avoided if at all feasible.

Real Estate

Whether inflation is skyrocketing or remaining steady, a good financial planner would always advise their clients to keep a diversified investment portfolio. Please read Investing Basics for Novices if this is not evident to you. Third in a series: You should never trust all of your eggs to one basket. No matter how high or low inflation becomes, real estate is always a safe bet. As property values tend to increase in tandem with inflation, real estate has often fared well during periods of rising prices. A landlord might enhance their income by raising rent prices for their tenants.

If you’re smart about it, investing in property may yield substantial financial returns. The main idea is that real estate is a good inflation hedge since it generates steady income, rises in value over time, and reduces debt. Also, the “psychology of the crowd” provides an extra boost.

It would be a mistake to decide to invest in “real estate” without first researching the many sub-classes within this asset class. It’s better to go over your alternatives carefully.

Related: Comparison Between Buying and Renting a Home

Making Investments in a Time of Soaring Inflation

Commodities

Investors might gain some insight by looking at how certain assets fared in the past during periods of inflation. Furthermore, historically, commodities have fared well during times of rising inflation. Specifically, the energy industry is booming.

One research of inflationary times beginning in 2000 found that oil investments alone generated a 41% return, while gold generated 16%. Gold is one of the few asset types that thrives with high inflation, rather than low inflation or steady inflation.

Gold (and other precious metals), food, and oil all tend to increase in price with inflation and can be used as a hedge against its effects. As an alternative to real estate, which might be too expensive for the ordinary retail investor just starting started, these investments may be a viable option. However, it is important to remember the inherent dangers of trading commodities. Supplies and demands, both of which are difficult to anticipate, determine the level of commodity prices. Therefore, commodity investment is quite challenging.

Cash

A better plan would be to amass physical assets that can endure periods of high inflation rather than just sitting on large sums of cash in a savings account. Current annual inflation is 8.3% for the 12 months ending in April 2022, and it is on the rise. The US dollar is losing purchasing value and the income received on savings is not keeping up with inflation, so hoarding cash is not a good way to secure your wealth.

One of the risks of inflation is the decline in purchasing power of funds held in savings accounts, which is often disregarded. A large proportion of investors already know this. It’s easy to underestimate the danger, though, especially if your retirement plan is heavily weighted towards cash but not producing any returns. There are instances when it makes sense to “side-step” the market and store cash, but in general, savings in cash depreciate over time.

A Green Economy Can Bring in More Money for Investors

Think inflation is awful now? Wait till the rest of the commodities markets get going. Copper, aluminium, nickel, and steel are all essential building materials, but their costs haven’t risen nearly as much as fuels and energy-driven commodities like food have. However, if authorities in Europe and Australia have their way, they will. Put on your seatbelts.

To begin, the Green movement will likely hasten inflation in the near future. Two, consider buying copper, aluminium, and other “Green” materials as an investment. Metals such as cobalt, graphite, iron, lithium, manganese, nickel, polycrystalline silicon, and steel come to mind. These are the raw materials for producing EVs, solar panels, and wind turbines.

In the short term, the Green Movement will raise prices. As a result, you might wish to put your money into copper, aluminium, and other natural resources that are crucial to creating a more sustainable global economy. Things like polycrystalline panels, wind turbines, and the metals cobalt, graphite, iron, lithium, manganese, and nickel come to mind.

In terms of environmental sustainability, farmland is unrivalled.

Russia’s invasion of Ukraine has resulted in widespread food shortages that have had an impact well beyond the borders of that country, as well as incalculable human suffering and cultural ruin within Ukraine itself.

Ukraine is renowned as the “Breadbasket of Europe” due to the country’s reputation as a major global producer of wheat and sunflower oil. At one time, Ukraine was among the top three exporters of grain worldwide, thanks in large part to its access to deep seaports.

Food shortages in Ukraine, other countries in North Africa including Egypt, Tunisia, and Algeria, and the Middle East have prompted fears of a global food crisis as a result of the conflict in Ukraine. Particularly vulnerable are nations in the Global South that cannot afford the ever-increasing price of wheat. If Ukraine and Russia’s food exports are permanently halted, the UN Food and Agriculture Organization (FAO) believes that an additional 8-13 million people throughout the world will go hungry.

Some people aren’t factoring in the potential worldwide food catastrophe and wheat shortages that might result from this conflict. Regarding FAO’s prediction of the effects of food shortages, another source adds:

The lack of fertiliser is something they completely ignore. Together, [wheat and fertiliser shortages] pose the risk of a continental-scale famine, increasing the number of people at risk of going hungry by a factor of at least.

As a result of the war, the supply chain for fertilisers has been disrupted, driving up their already-astronomical prices. The war’s effects are already being felt throughout the world, putting a strain on already-stretched agricultural supplies as countries try to keep up with soaring consumer demand. Even if farmland is still less liquid than publicly traded securities, its liquidity is increasing rapidly because of its rising value.

If you’re interested in purchasing farmland, you should give some thought to what kind of property will best suit your needs. The food and grocery sector is a $12 trillion industry that may pique your interest if you are not interested in farms but are interested in “farm-adjacent” investing. Think about if eco-friendly investments are the best option.

Comparison Between Buying and Renting a Home

Comparison Between Buying and Renting a Home

Many people who are considering purchasing their first house are troubled by the dilemma of whether or not they should rent instead of buy. The “Great Australian Dream” of having one’s own home is deeply ingrained in the national consciousness of Australia. On the other side, renting has a reputation for being associated with unfavorable phrases such as “rent money is dead money” and “you’re paying off someone else’s mortgage.” It is possible that learning that these statements do not always accurately represent the benefits of renting vs those of owning a property would come as a surprise to you. Each option comes with its own set of benefits and drawbacks; depending on your requirements, you may find that one option, the other option, or a hybrid of the two is more appropriate for you.

The Advantages of Buying A Home

Consider some of the following benefits of investment management that may accrue to you as a result of purchasing a home:

It is a Method of Compelled Financial Savings.

To tell the truth, very few people are capable of accumulating enough money in the next ten or fifteen years to be able to afford to purchase a home. When you take a mortgage, this essentially becomes a savings plan that you are required to stick to, despite the fact that you will also be required to pay interest on the loan.

Comparison Between Buying and Renting a Home

A house is an asset that rises in value over time.

A home is perhaps the asset that offers the highest level of protection for its owner. If you have a good understanding of the trends that affect property prices, the home that you purchase will probably increase in value over time. This is amplified if you buy in a place that is expected to grow more popular over time as a result of the construction of an entirely new commuter hub or other external considerations.

Freedom to Renovate

When you own a property, you have complete control over what changes you make to it. You have the ability to turn it into your dream castle. You will not be need to answer to a landlord, nor will you be subjected to the dreaded inspections conducted by a real estate agent.

Calm and Composure

There is no one who can coerce you into leaving a home that you own. You would still be reimbursed even if the government decided to take possession of the land by force in order to protect national interests.

The Downsides to Purchasing A Home

Your finances are held hostage.

A minimum deposit of ten percent is typically required for many types of mortgages. For many homeowners, this can easily go into the hundreds of thousands of dollars. This requires a significant financial commitment. There is a cost in terms of lost opportunities connected with becoming a homeowner. The question “what else” and “where else” might I invest this money for a greater return has to be posed and answered before opting to make an investment in a property.

You Are Fixed

If you buy a house, it almost certainly signifies that you want to stay in that community for the foreseeable future and make it your permanent residence. You will not be able to relocate unless you first make plans to either sell or rent out the residence. These are the kinds of things that require time.

Comparison Between Buying and Renting a Home

The Benefits of Living in a Rental Home

You Are Free to Live Anywhere You Choose To.

In today’s highly competitive real estate market, renting might provide you with the opportunity to live in the neighbourhood of your choice, rather than being limited to areas where you can afford to purchase a house.

It Is Less Difficult to Move

You only need to hand in your notice if you plan to, or are required to, relocate. Renting gives you more leeway in your schedule.

You Might Invest Your Money Somewhere Else

Renting out a property and then reinvesting the proceeds in other assets is one way to diversify an investment portfolio rather than putting a significant amount of money into a single asset. You also have the choice to invest in several different assets, which will result in an increase in the benefits of diversification.

The Uncertainty That Comes with Renting

If the landlord follows the appropriate protocols, they have the right to either forcibly evict you from the rented residence or increase your rent. This may leave you feeling unsure of where you are, particularly if you have had to relocate many times. Many people consider moving to be one of the most stressful things that can happen to us. The added expense of moving each time might also contribute to the overall cost of renting an apartment.

There Will Be No (Compulsory) Savings

In contrast to the payments on a mortgage, there are no “forced savings.”

Restrictions

When you are a renter, there are several limitations placed on the modifications that may be made to the property that you rent. Even the most innocuous of wall-mounted home decorations may not be permitted under the terms of your rental agreement if you want to avoid violating the terms of your lease.

Rent-Vesting

When it comes to choices for house ownership, a rising number of individuals are selecting a third alternative. The practise of purchasing a house for the purpose of renting it out is known as “rent-vesting.” This alternative gives a one-of-a-kind blend of the benefits that are associated with renting and investing, which can be good for your investment portfolio management. It is possible for you to live where you want to live while still being required to save money, and if you buy a property with a decent return on investment (ROI), your rental income may be utilised to supplement your rent.

The most essential thing is to save money for the future in some manner, shape, or form, and it doesn’t matter how you do it as long as you do it. Spending all of your money on “assets that are not appreciating” will not assist you in growing your wealth, either now or in the future.

To determine whether buying a house will be good for your investment portfolio or renting an apartment and using the rest of the savings for other assets with good interest should be considered under the lens of many factors, so contact an investment portfolio manager Australia or financial advisor via Omura Wealth Advisers to be properly guided in the process of planning your finances.

More to read: Successful Strategies for Preserving Your Resources

Successful Strategies for Preserving Your Resources

Successful Strategies for Preserving Your Resources

Is your estate and financial legacy safely moving into the hands of those you love when you die?

To avoid having the government make decisions about how your assets are distributed after your death, it is important to create and implement a comprehensive estate plan. Also, your estate will go to the persons you choose rather than passing into the hands of strangers. It also permits you to choose someone you trust to make important choices about your care and finances if you become unable to do so yourself.

Methods of transferring wealth range from:

If the future of your investment portfolio management is well-organized and carried out, not only will it reduce the benefactor’s tax liability, but it will also provide substantial financial benefits to the beneficiary’s loved ones. However, if an estate is not managed properly, it can lead to resentment and hurt feelings among relatives. The wrong people can get their hands on your money too. Getting the help you need to create a solid estate plan may be a simple process, but you must seek it. An estate planner, investment portfolio manager and financial advisor can work together to ensure that your assets are managed properly when you’re alive and when you die they are dispersed in accordance to your wish and in a tax-efficient manner.

Successful Strategies for Preserving Your Resources

A Last Will and Testament Is Necessary

Is your will up-to-date? The time has come to start planning for the future of your investment portfolio.

Having a well-organized and up-to-date “will” should be your first priority when thinking about estate planning. Once you pass away, a will details what happens to your possessions and any money you have. If you die without leaving a will, the state will decide who gets your property and all that you have accrued in your investment portfolio overtime, which may be someone you wouldn’t want to inherit from you.

It is shocking to learn that more than half of Australians will die without a will in place, especially given how easy and affordable it is to create one. The likelihood of a legal challenge to your will decreases significantly if a professional helps you prepare and phrase your will. You should also save a copy of your will in a safe place and give a copy to your attorney and executor to make sure your efforts are not in vain.

Gifting Money and Assets During Your Lifetime

With proper planning, you may be able to avoid paying taxes on gifts made during your lifetime.

Even though drafting a will is the initial step in estate planning, you may want to think about how to share your fortune while you are still living. Naturally, this technique requires sound financial counsel from an adviser who specialises in estate planning. You should plan for your own retirement needs, such as health care costs as you age and your desired standard of living, before deciding how to distribute your estate. Consideration must also be paid to the impact on pension and benefits for the elderly. If you transfer wealth that is worth more than $10,000 per year or $30,000 over five years, you may lose some or all of your Centrelink benefits. Also, of note, as they may play a role in the transfer of wealth, are capital gains tax and stamp duty. Make an appointment with your accountant to go over the potential outcomes and consequences of such a wealth transfer.

Successful Strategies for Preserving Your Resources

Be Wise in Your Tax Approach

The transfer of wealth through one’s own super is common. Sometimes people pass away and leave behind a sizable quantity of super. The benefactor’s superannuation amount can be transferred to their children if they so want, however the children may be subject to a death benefits tax of 15% as well as a Medicare fee. Most of the time, this is because the children in question have reached an age when they are no longer considered State dependents. If the donor withdrew the superannuation and left it to the beneficiaries in a will, this problem would never arise. However, this method has consequences, so it’s best to discuss it with a financial expert and portfolio manager in Australia beforehand. As soon as retirement savings are withdrawn, they enter the taxable realm, making timely withdrawal crucial.

The question of whether or not your estate’s real property will be a pre-Capital Gains Tax asset is equally important to think about. It is important to consult with both a financial planner or portfolio manager and an attorney while you make your estate plan. To ensure that any plan is effective and worthwhile, it is important to assess a number of factors before putting any into action.

A beneficiary may be considered “at risk” due to factors such as their health or the stability of their relationship. In order to guarantee that your wealth transfer is structured in a way that is beneficial to your loved ones and maintains your legacy, it is vital to consider all possible scenarios within your family. The future of your riches is something that should be discussed with your family.

You can take measures, such as establishing a testamentary trust or making a binding designation on your superannuation, to safeguard your assets and prevent them from going to those you never intended to benefit from them.

Keeping the Dialogue Open

It’s never too early to start discussing your legacy with the people who are meant to receive it. One of the most helpful things a donor can do is to start the dialogue about the future of their fortune from an acceptable yet early age, laying the groundwork for a lifetime of financial success. When the time comes to give presents or sell assets in your investment portfolio, having had these discussions beforehand will ensure a seamless process. Although discussing one’s wealth openly within one’s family may make some people uncomfortable, doing so allows for more honest communication and gives the donor a chance to express their true wishes on the distribution of their estate. If you want to avoid disputes and stress, it’s best to talk about money ahead of time, even if it’s uncomfortable. You should bring up the topic of testamentary trusts so that your heirs (your children) will benefit rather than your ex-spouse in the event of a divorce.

Reach out to Omura Wealth Advisers now to schedule a session with some of the top financial advisors and portfolio managers in Australia to have a foresight about the future of your properties and investment portfolio.