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How can you protect yourself from inflation?

Inflation is going up higher and higher! The government seems to be very comfortable with higher inflation. There's no point in fighting the government. It’s best to adjust your strategy to see how you can protect yourself from higher inflation.


First off, let’s go over what inflation is. Inflation is the rate at which prices increase. You’ll hear old folks who would say things like…I remember stamps used to be just 10 cents. Now they’re $1! Or "I remember buying a Big Mac for only $5, now it’s almost $7!" Normal growth in inflation is good. In fact, the Bank of Canada wants to target the growth at 2% each year. That shows the economy is growing in a healthy manner. Nowadays though, inflation is around 4%-5% and the Bank of Canada doesn’t seem to be concerned about it, saying "that is just temporary, so don’t worry!" If you’ve gone out to eat, the menus are new with higher prices. Portions may be smaller than before and you really feel the effects of inflation. With inflation too high, it’s a problem because the purchasing power of your money decreases. Before you could buy 2 meals for $20. Now, with the same $20, you can only buy 1 meal.


So how can you protect yourself from inflation? You HAVE to invest. You need to put your money in assets that will grow with inflation. If you having your money that you’re saving with no plans of using in the near future in your bank account, that’s the dumbest thing to do. Invest it! Well, what can you invest in? There’s stocks, crypto, gold, silver, commodities and of course, real estate.


I’m going to talk more about real estate because it's really one of the best ways to protect yourself from inflation. When inflation is high, home prices tend to move higher as well. But with real estate, you can take advantage of leveraging. Leveraging is a way to use other people's money to buy an asset. In this case, if you want to buy a property that’s worth $500,000, you may only need to pay $100,000 only and you can borrow the remaining $400,000.


Now, imagine inflation stays high and the price goes up, your property was $500,000 but now it’s $550,000. Ok, so it increased by $50,000 and that’s a 10% return, right?! Well, yes and no! If you calculate it using $500,000, yes, that’s a 10% return. BUT you didn’t put down $500,000 though. The money you put in was only $100,000. So if it went up by $50,000, that’s actually…A 50% RETURN! So you can see how powerful this is because with a 50% return, it HAS to be able to cover the rate of inflation even if it’s higher than normal within the 4-5% range!


I understand not everyone may be able to buy real estate so there are other options that I’ve mentioned. Real estate, in my opinion, would be the best way. Bottom line is…make sure you’re investing your money! Don’t let it just sit there in your chequing or savings account. The amount may look the same but the purchasing power or its value is declining.


And there you go! We just went over one of the best ways you can protect yourself from inflation. Want to know more or see what other options are available to you? Please reach out to us and we'd be happy to help!

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