Inflation eats its way into all parts of the US economy. It continues to increase the prices of goods, from gas to groceries to toilet paper.
It is evident in the consumer price index. This chart measures inflation by checking the prices of goods over time, keeping the goods and their quality constant.
The consumer price index went up 5.4% last month. That is equal to its most significant increase since August 2008. And the worst part is that this trend may continue.
Some economists and other financial experts claim that the rate of inflation at the moment shouldn’t be such a big deal, but inflation remains rampant. Investing, however, is a different ballgame.
According to Warren Buffet, CEO of Berkshire Hathaway, some businesses are more likely to succeed than others in this period of inflation.
Businesses That Do Best In Times Of Inflation.
Buffet gave this information during a Berkshire Hathaway shareholder meeting in 2015. He had been asked which of his investments would flourish even during a period of high inflation.
He answered that “The best businesses during inflation are the businesses that you buy once and then you don’t have to keep making capital investments subsequently.”
- Businesses with continuous capital reinvestment would become more costly to run as the inflation continues and the dollar’s value falls. The CEO said that “any business with heavy capital investment tends to be a poor business to be in in inflation and often it’s a poor business to be in generally.”
Some businesses included in the no-go list were utilities and railroads, as they need repeated capital reinvestment. On the other hand, brands are an excellent thing to own during inflation.
- For the small-scale investors who can’t purchase entire businesses, buying stock in good companies remains an option. With a share in a strong company, the product or services of the industry will remain the same or even appreciate, no matter how much the dollar falls during inflation.
- Buffet also said real estate would be a good purchase during inflation, as it is a one-time payment, with the added advantage of reselling. Selling the property during inflation would give the investor a bonus.
- However, putting all your eggs in one basket has never been a good idea. Instead of picking a single stock and investing all your capital there, you could invest your money in cheap index funds. These are not as dangerous.
That wasn’t the first time Warren Buffet had recommended people to invest in these index funds. Popular ones like S&P 500 have stocks of big companies like Apple, Google, and Coca-Cola. And with all the stocks in an index, they are automatically diversified.
Warren Buffet also advises people trying to make up their retirement savings, to invest in low-cost index funds like S&P 500. According to him, it makes “the most sense practically all of the time.”
Buffet finally advised all investors to work on their consistency and buy an S&P 500 low-cost index fund. “Keep buying it through thick and thin, and especially through thin.” Buffet cautioned.
The stakes in regular companies change in inflation, but some businesses seem like they were made for inflation. Now you’ve learned what they are, making money during inflation will become quick and easy.
We wish you luck.