Gabriela is the Founder of the Latino Wall Street movement, which provides financial education to the Latino community.
As the leader of a financial education movement for Hispanics and with a presence in most Latin American countries, escalating inflation is an element that I have had to take into consideration in the content and training that I offer to my community.
Historically, inflation has been a persistent in Latin American countries and has contributed to a substantial decrease in people’s purchasing power and, therefore, to families’ quality of life.
In my role as a mentor for Latin investors, I have trained thousands of Venezuelans who seek to protect their assets from the overwhelming inflation in their country, which by 2020 was around 3000% per year, according to a Reuters article. This bout of inflation was also emerging as the second longest in history, only behind the Nicaraguan hyperinflation in the 1980s.
Thus, my financial education agenda has allowed me and others to prepare in advance to face more rapid inflation, which in the United States is a relatively rare phenomenon, but from which I and fellow Latinos have learned to protect ourselves and even take advantage of it to grow our finances.
However, the first thing is to understand how inflation works and what consequences it can cause in the future.
Can inflation trigger an economic recession in 2022?
Despite the fact that some do not see a new economic recession on the horizon, the consumer price index (CPI) figures have reached 7.9%, the highest point in 40 years. The economic restrictions stemming from conflict around the world could put even more pressure on inflation.
On the other hand, you must take into account that food, fuel and basic services have been most affected by the galloping increase in prices for February 2022which makes the negative impact more palpable.
A new economic recession is definitely a scenario that American families should consider in their agenda for this year and, therefore, they should start preparing to navigate through the decline of purchasing power, the scarcity of basic products and other consequences of the recession, which until now have not hit with their full force.
Surviving Inflation Through Investing
One lesson I constantly teach my students is that, for most people, an inflationary scenario simply means a constant and indiscriminate rise in prices, but from an investor’s perspective, inflation is a world of opportunities to generate income.
In the first instance, investments are a refuge to protect wealth since assets tend to retain their value against the devaluation of fiduciary money. Historically, many investments have served as hedges against inflation, with real estate, commodities like gold, and some types of stocks and bonds being among the favorites.
However, the objective of the financial education training that my team of experts and I impart goes far beyond the “traditional protection” against inflation. Our intention is to show strategies that benefit from this scenario and that are within the reach of anyone with an internet connection.
Three Recommendations For Making Inflation Work In Your Favor
The three types of investments that I describe below seek to go beyond a traditional 60-40 protection strategy and to open the doors to the prospect of generating profits with the global economic situation we are experiencing right now.
Consider Investing In Reliable Long-Term Stocks And Indices
If you study the performance of the stock market in the last decade, you find that the revaluation of the main indices and stocks is much higher than the inflation projected for the coming years; there is no reason to think that this trend will change. Therefore, a simple investment will not only protect your assets from inflation but will allow you to multiply your capital on autopilot.
There is a simple example in the S&P 500, the main index of the New York Stock Exchange, which has reported a growth of 250% in the last decade alone and in which anyone can make long-term investments to grow their capital with low risk and without the need to learn complex investment strategies or be glued to the screen several hours a day. Taking into account that the accumulated inflation in the same period was 21.51%, this simple investment in the stock market would have made you multiply your capital by nine in the last 10 years completely automatically.
Work On Impeccable Credit
Credit is one of the most effective weapons to fight inflation, as long as you use it wisely. Using your borrowing capacity will allow you to access goods and services before prices rise and you will be able to repay them monthly by adding only the applicable interest, which could be well below the projected inflation rate for the rest of 2022.
Look At Solid Raw Materials
Although it is true that investing in raw materials generates long-term profits and serves more as a “protection measure” than as a profitable investment, the current scenario has changed this reality.
Various factors, including increased demand since the start of the pandemic, have seriously affected the supply of fuels such as gas, oil and other raw materials, which have already begun to rise in price and, therefore, this year could leave profits well above average .
As I always say, education is the key to freedom. Financial education can help people to not only resist a potential economic winter but also succeed and improve their quality of life while others see money evaporate from their bank accounts.
Credit: www.forbes.com /