Top 5 ways Rich people make money during inflation

Top 5 ways Rich people make money during inflation

Let’s take a look at the different ways rich people are making millions out of inflation.

What is inflation?

Prices for products and services are constantly subject to change in a market economy. Some prices climb while others decline. Inflation happens when there is a general increase in the pricing of products and services rather than simply specific things; it means that you can purchase less for €1 today than you could yesterday. In other words, inflation devalues the currency over time.

Top 5 ways Rich people make money during inflation

1. Hold Real Assets ( Property )

What most people don’t realize is that currency is a commodity in the market, and its price is decided by demand and supply, among other things. Consider a hypothetical scenario in which you have ten residences on one side and ten bucks throughout the entire economy on the other.

A single residence will cost one dollar in this hypothetical scenario. But if we put an extra $10 into this market, there will be $20, but there will still be 10 houses, raising housing prices till a single house would cost $2. That is a straightforward explanation of inflation.

When the economy was on the verge of collapse last year, the Fed decided to inject trillions of dollars into the economy to avert a depression by distributing stimulus cheques and purchasing corporate bonds. In 2020, 22% of the US dollars in circulation will have been produced. Anyone with a rudimentary understanding of economics could see that inflation was on the way.

That’s why, back then, everybody who could afford a home invested in real estate rather than storing cash, especially because interest rates were at their lowest. It makes no difference whether the real rate of inflation is 2.4% or 3.4%. Because housing prices increased by 15%, with other estimates ranging from 18% to 20%.

This indicates that real estate investors not only outperformed inflation but also gained greatly. But the most astute investors did not only buy properties but also took out mortgages, since leverage transforms excellent buys into outstanding ones, especially when interest rates were at rock lowest.

2. Debt

Many of you may have a bad attitude about debt, however, debt may be beneficial, especially in times of inflation. If today’s dollar is worth more than tomorrow’s dollar. That means that if I borrow a dollar today and return it the next day, I will have made a profit. The median property price now is roughly 350K dollars, but it was less than half that 20 years ago, at around 150K dollars. Because the real value of the dollar diminishes every year, the same 150K dollar 20 years ago is now worth 350K.

That’s why, when the Fed cut interest rates and began buying corporate bonds, guess who borrowed all that money? The world’s major corporations, including Amazon, Facebook, and Microsoft, Apple is sitting on a pile of cash worth over 200 billion dollars. But it still borrowed money because why use your own money when you can just throw your money into the S&P 500 and get at least a 10% return and borrow money at just 1%?

Even if you earn a 5% return on that borrowed money by investing it in your business, you are still profiting by 4%. Furthermore, when you borrow money, you receive all of these tax advantages. As a result, you will save money on taxes. If interest rates are lower than inflation, any money borrowed is a profit.

3. Gold investing

What distinguishes gold is that it has traditionally been an asset that maintains wealth, particularly during times of crisis. It works here. Gold prices climb when the future appears uncertain.

Because of the 2008 crisis, gold prices soared from roughly 600 dollars to $1,000 dollars in 2007. Investors panicked and began purchasing gold right away. The US currency may lose value and possibly become worthless one day, but gold will not.

While the US dollar has lost more than 90% of its value in the previous century, gold has retained its worth from the dawn of civilization. In 2010, speculators panicked once more and began purchasing gold rapidly, pushing gold prices to a record 1900 dollars. However, the economy has subsequently steadied, and the gold bubble has popped.

When the economy appears to be improving, investors typically do not purchase gold and instead invest in assets such as equities. As a result, gold prices frequently decline during predictable, steady times. However, when the United States launched a trade war with China in 2019, gold prices began to rise again, and the pandemic exacerbated the situation. For the first time, gold prices surpassed $2,000 per ounce. Looking back in time, gold has always been a terrific method to profit from inflation.

However, I am not a fan of gold because it is a passive asset. It merely sits there and shines, whereas stocks or real estate provide rental money. It is an active asset that offers a service or product. Why are stocks continuing to rise? Because the firms that power them are expanding. Apple now sells many more iPhones than it did ten years ago. That is why it is far more valuable today than it was ten years ago.

4. Crypto investing

I was hesitant to include it on this list. However, because many individuals have gained from inflation by purchasing cryptocurrency, I felt compelled to discuss it, though it is extremely dangerous.

The technology is undeniably wonderful, and it has enormous promise, but because it is still in its early stages, it is extremely dangerous and unpredictable in the near run. As previously said, one of the reasons bitcoin has risen so substantially in the last year is that the Fed has been creating trillions of dollars. After purchasing stocks and homes, investors thought, bitcoin is like digital gold, therefore let’s purchase bitcoin as well. Many people who were uninterested in bitcoin previous to the outbreak have forgotten about it.

Prior to the trade war, the price of bitcoin was just $3600 USD. You might have made a fortune if you were interested in bitcoin when most people weren’t, but people normally get enthused about anything when it’s all over the news. However, the most astute investors entered the market before the masses and have increased their fortune by 10 to 20 times since then.

5. Stocks Investing

This is my preferred option. Stock prices may not have soared by thousands of percent as much as crypto, but they are far more stable and less dangerous. The S&P 500 increased by 40% from July 2020 and July 2021. That’s an incredible return, especially considering you’re investing in the whole US economy.

When you buy a stock, you are purchasing a stake in a company. That is why they are also known as shares. When there is an excess of cash in the economy, the value of that enterprise increases, therefore you are expanding with inflation.

Furthermore, that money is often spent on fundamental necessities and desires, causing businesses to develop quicker, allowing you to not only combat inflation but also profit from it. Consider how much of that stimulus money was spent on Amazon or Apple items. Add to it the fact that these corporations have taken out billions of dollars in loans for essentially nothing and grown tremendously.

People are returning to work, the economy is reopening, people are spending more, and these firms are poised to expand even further. The goal is to keep your money invested in assets that are inflation-protected.

The majority of wealthy individuals do not have much cash on hand. They usually keep a little portion of their net worth liquid for emergencies. Consider the world’s wealthiest individuals.

They are so wealthy because they own a specific share of the companies they founded. Their wealth grows in tandem with their enterprises. Even if you only have a few thousand dollars, you may profit from inflation by using one of the strategies we’ve covered.

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