5 Ways To Beat Inflation Without Chasing Capital Gains In The Stock Market

5 Ways To Beat Inflation Without Chasing Capital Gains In The Stock Market
A lot of times, the stated goal for investing is to beat inflation.

But to me personally, that rings hollow when I read that their solution is to get into the stock market and chase capital gains. Most likely, they just want more money and the inflation rate was a no-brainer excuse.

That may sound harsh or judgmental. But I should know; I did it too.

And to prove it, here are five ways to beat inflation without chasing capital gains in the stock market. If they're un-appealing, then most likely what we want isn't really to beat inflation.

Now, according to the National Statistical Coordination Board, the average inflation rate from 2006 to 2013 is about 4.43% per year.

It's not a lock that the trend will continue (it swings wildly form time to time) but for the purpose of this exercise, let's assume it will follow the trend. So we want to beat 4.43%.

Invest in real goods

Simply use your money to buy in bulk everyday items and have enough to last you for years. Occasionally use sales to shore up your stockpile.

Just be mindful to not let them expire or to give in to wasteful use.

Very unappealing? But it's a very straightforward way to negate inflation altogether. After all, inflation is just the increase in price. If you already have the items you need, there's no room for inflation.

Open a Time Deposit account

Usually Time Deposit acount won't be enough to combat inflation.

But in rare instances, it can. If the current inflation rate is high and is about to trend down, you can open a long-term time deposit account and lock in the current, relatively-high rate.

Over it's lifetime, it could be enough to combat a declining inflation rate.

Of course, making predictions on the movement of inflation is neither easy nor practical.

Buy Bonds

You can check the different banks or mutual funds near you and ask for the prospectus of their different bond funds.

Usually, the returns can be as high as 7% per year. There are times when it can also be pretty low (i.e. when there's Quantitative Easing).

In general though, bonds can combat inflation.

Subscribe to Preferred Shares

They're basically like bonds, despite being stocks.

In return for buying a preferred share, the company promises to pay you a dividend as long as you're holding it.

There are downsides. You could get "stuck" with the shares: no one will buy them from you and the company won't redeem it (i.e. give you your capital back, in return for the shares). Also their value might not appreciate - no capital gains.

The upside is that you keep getting paid the dividend. Additionally, dividends can be as high as 8.8% - almost double our target return.

Buy Common Stocks that give high Dividends

Although rare, there are companies that give dividend yields greater than 4.43%.

An additional benefit, because they're common stocks, is that their value can appreciate. And dividends can increase over time as well. So what was once a modest 4% dividend could one day return 10% or more of your capital.

But the difference with chasing capital gains, is that companies that give out large dividends usually aren't considered "growth" companies - their stock price can still grow, but most likely at a slow pace.

If none of those ways sound appealing to you, it might be because you're not really trying to beat inflation but instead trying to make lots of money.

There's absolutely nothing wrong with that, but it's important to accept it and define just what the money will be for.

Investing without a goal is bad. But Investing for the wrong goal is just as bad.

It's going to be difficult to make the right investment decisions if we don't give thought to what the money will really be used for.


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