Top 6 Best Investments To Hedge Against Inflation in Malaysia
Publish date: 2023-3-6
Inflation is a constant worry for many people, but there are ways to hedge against it, some of which are more effective than others. Here are six of the best investments to consider if you want to protect your wealth against inflation.
Table of Contents
- The Basics of Inflation
- How to Track Inflation
- Pros and Cons of Investing for Inflation
- Top 6 Future Inflation Investments
- Gold (Precious Metals)
- Commodities (Non-Gold)
- Short-term bonds
- Stocks (Equities)
- Real Estate
- Investing in Times of High Inflation Cannot Be Done in a One-Size-Fits-All Manner
- Bottom Line
The Basics of Inflation
Inflation is a rise in the prices of goods and services. When prices rise, people generally have to spend more money to buy the same amount of goods and services. This can make it harder for people to afford the things they need and can lead to problems in the economy.
Inflation is a gradual increase in prices over time, and the rate of that increase is expressed as a percentage. Prices can go up quickly at first, but over time they gradually rise as inflation takes hold. While there's no surefire way to stop it, understanding how inflation works will help you keep your costs in check and budget for future expenses.
How to Track Inflation
The PCE Price Index Malaysia is a measure of the overall cost of living in Malaysia. It tracks changes in prices for various goods and services across the country. The index is based on data from the Department of Statistics Malaysia’s consumer price survey, which covers all major cities and towns throughout the nation.
The PCE Price Index is a more comprehensive measure of inflation that takes into account the change in prices for goods and services purchased by consumers. It's important to keep track of this index as it can help you understand the overall trend in prices and inflation.
It measures the average change over time in the prices paid by urban consumers for a fixed basket of goods and services, including housing, food, clothing, transportation, gas, medical care, and other items. The PCE Price Index is used by the Federal Reserve to evaluate inflation trends and adjust monetary policy accordingly. It is seen as a more reliable measure of inflation than the CPI because it includes expenditures by all consumers, not just those with incomes above a certain level. In addition, the PCE Price Index takes into account changes in the quality of goods and services, unlike the CPI. This means that the PCE Price Index is able to better capture the true cost of living for all consumers.
Pros and Cons of Investing for Inflation
- Inflation is a natural phenomenon that is always happening.
- Investing in inflation-proof securities can lead to larger returns over time.
- Inflation can protect your savings from losing value.
- Inflation can cause the value of your investments to decrease over time.
- It can be difficult to predict when inflation will increase, so it is important to have a plan for how to handle it.
Top 6 Future Inflation Investments
Although no one can predict the future market trends, investing in assets that will withstand inflation is still a smart way to protect yourself from future price hikes. By purchasing assets that are sheltered from inflation and have a long history of stability, you can ensure that your finances remain safe and sound into the foreseeable future.
There are a number of ways to invest during inflation, and each has its own set of benefits and drawbacks. Here are the top six inflation investments for the future:
1. Gold (Precious Metals)
Gold is a durable asset that has been used throughout history as a store of value and medium of exchange. Despite this, gold prices have fluctuated throughout history, which makes it difficult to predict their long-term trajectory. However, gold is still an attractive option for investors because it provides protection from inflation and other financial risks.
Consider gold an investment option, but don’t go all in just yet. There are other factors you’ll need to consider before investing in gold.
If you invest in physical gold, it's important to remember that there are additional costs associated with storing and insuring the metal. This can reduce your returns over time.
When it comes to investing in gold, gold trading, mutual funds and ETFs can offer great value and cost-effective solutions. However, volatility in the price of gold is a common concern, especially over the short term. By investing sensibly and maintaining a long-term perspective, you can reduce the risk associated with this investment type while still benefiting from its potential benefits.
2. Commodities (Non-Gold)
One of the most effective inflation hedges is to invest in commodities. Agriculture and raw resources can be exchanged like securities. Among other things, commodities traders frequently buy and sell oil, natural gas, corn, meat, and coffee. A portion of an investor's portfolio can be allocated to commodities through the use of CFDs, futures contracts and exchange-traded funds.
Commodities are popular in times of inflation because they tend to retain their value better than paper currency. This is due to their tangible nature; commodities are real assets that can be bought and sold, even when the dollar loses value. Furthermore, the demand for commodities often increases during inflation times, resulting in higher prices.
Commodities, however, are risky investments and their value can drop suddenly. This is why it’s important to do your research before investing in them. Make sure you understand the risks involved and consult with a financial advisor if you have any questions.
3. Short-term bonds
If inflation escalates, investors may demand higher interest rates on short-term bonds, which are more resilient to price shifts, while long-term bonds will suffer losses.
Finding the right bond duration is important for achieving success. For shorter- to intermediate-term bonds, this means avoiding anything too long-term focused. This way, you'll be able to stay on track and achieve your goals easier.
Treasury bonds are considered one of the safest investments available. They offer investors a fixed rate of return with minimal risk associated with stock markets and other assets. While they offer stability, they also tend to be less volatile than other assets such as stocks or real estate.
Treasury bonds in Malaysia are government-issued debt securities that are used to finance the Malaysian government’s budget deficit. Treasury bonds have a fixed coupon rate and maturity date and can be issued in various maturities ranging from one year to 30 years.
The Malaysian government issues treasury bonds on a regular basis, usually twice a year, with the purpose of raising funds for its operations. The most common type of bond issued by the Malaysian government is called “Government Investment Issue (GII)” which is issued through an open auction process. Bids for GII are accepted from both institutional investors as well as individual investors who must meet certain criteria such as minimum investment amount and creditworthiness requirements. Investors receive interest payments on their investments at semi-annual intervals until the maturity date when they will receive their principal back plus any accrued interest payments due to them.
In addition to Government Investment Issues, other types of treasury bonds available in Malaysia include Islamic Bonds or Sukuk which follow Shariah principles and offer higher yields compared to conventional treasury bonds; Retail Bonds which allow retail investors (i.e., individuals) access to corporate debt instruments; Local Currency Bond Issuance Program (LCBIP) which allows foreign entities access into Malaysia's domestic bond market; Commodity Murabahah Bond whereby underlying assets such as gold or silver serve as collateral against loan repayment obligations; Green Bonds where proceeds are earmarked for projects related towards environmental sustainability initiatives; Ringgit Medium Term Notes (RMTN), short term notes denominated in ringgit currency with terms up 6 months; Inflation Linked Securities that protect against inflation risk while offering attractive returns over time etc.
Overall, treasury bonds provide an important source of financing for governments around the world including Malaysia where it helps bridge budget deficits and fund large investment projects without having to resort to excessive taxation measures or borrowing from external sources like banks or international financial institutions.
4. Stocks (Equities)
Equities may not be a reliable inflation hedge in the short run, but they tend to be more resilient over the long haul. Many companies have the ability to raise prices, passing along rising costs associated with increased supply chain costs. Other companies may not rely on prices for their profits - relying instead on other sources of revenue. However, not all companies are so fortunate and may find themselves struggling to keep up with rising costs. While stocks can be risky, they also offer potential rewards if the company performs well over time.
Therefore, it's important to invest in quality companies that can weather inflationary pressures. Additionally, high inflation can lead to buying opportunities that have long-term potential over short-term market fluctuations.
Finally, investors should look for companies that are well-positioned to benefit from inflation. These could include companies that provide goods and services that people will still need regardless of the economic climate, such as healthcare and technology. By taking a long-term approach to investing and carefully considering potential opportunities, investors can protect their portfolios against inflation.
5. Real Estate
Real estate can be an extremely lucrative investment option if you know how to read market indicators and find bargains in property markets around the world. Like stocks, real estate can be risky but offers great potential rewards if you're patient and make smart decisions about when to buy and sell properties.
Real estate in Malaysia is an attractive option for investors who want to hedge against inflation. The Malaysian government has implemented various reforms and initiatives to make real estate investment more accessible and affordable, including the introduction of the Real Property Gains Tax (RPGT). This tax applies to gains made on properties that have been held for more than five years, which makes it a great option for long-term investments. Additionally, property prices in Malaysia are generally much lower than those found in other parts of Asia, making it even easier to get into the market with a relatively low initial investment. On top of that, rental yields in Malaysia tend to be higher compared with other countries due to strong demand from expatriates and local tenants alike.
Investors can use indices to get a snapshot of how different assets are performing. For example, the real estate index provides an overview of the performance of different real estate types, such as apartments, villas, and office space.
In the United States, retail property has consistently outperformed other real estate investments over the past few years, according to a study conducted by the Massachusetts Institute of Technology. Apartment buildings and industrial properties have lagged behind, while property owners in retail sectors can take advantage of rising consumer demand and increased competition from online retailers.
Inflation is always a big concern for landlords, as their income can be drastically affected by it. However, property prices tend to go up during periods of high inflation, meaning that landlords can charge more for rent and still make a healthy profit. This helps keep the landlord's income level in line with the rising cost of living.
Some people invest in real estate through REITs (Real Estate Investment Trusts), which are a type of mutual fund that invests in real estate. The MIT analysis looked at how well different types of real estate performed over time, taking into account inflation growth, maintenance costs, and appreciation.
Owning single-family homes can provide a hedge against rising prices, depending on local market conditions. When the market for single-family homes is robust, owning a home can provide stability and protection from inflation. Conversely, when the market for single-family homes is weak, owning a home can actually lead to price increases.
6 . Bitcoin/Cryptocurrencies:
Cryptocurrencies are digital or virtual tokens that use cryptography for security and trustless transactions between parties without needing third party confirmation. Bitcoin was created in 2009 by Satoshi Nakamoto, who remains anonymous. Cryptocurrencies are controversial because some proponents believe that they will revolutionize global finance while others fear that their volatility will lead to economic instability. However, there is no doubt that cryptocurrencies have attracted attention from investors around the world due to their potential returns on investment.
Investing in cryptocurrencies can be a great way to hedge against inflation. Cryptocurrencies are becoming increasingly popular as an investment asset class due to their decentralized nature, low transaction fees and potential for appreciation over time.
By investing in cryptos, investors could potentially benefit from the same benefits of traditional investments while also reaping the rewards of higher returns than traditional assets like stocks and bonds. Additionally, many people believe that cryptocurrencies especially Bitcoin and Ethereum have the potential to become more valuable over time as they become more widely accepted by mainstream consumers and businesses alike.
Cryptocurrencies are volatile and can be risky, but that's what makes them so exciting. If you're looking to invest in cryptocurrencies, it's important to do your research and understand the risks involved. There are a number of resources available to help you learn more about cryptocurrencies, crypto trading and how to invest in them safely.
Investing in Times of High Inflation Cannot Be Done in a One-Size-Fits-All Manner
There is no one-size-fits-all approach to investing during high inflation, as each individual's investment goals and risk tolerance will vary. Some people may prefer to invest in stocks during high inflation, while others may prefer to invest in bonds. Additionally, some people may want to invest in assets that are immune to inflation, such as real estate.
If investors think high inflation will continue, some of them may consider borrowing money to invest in real estate, which allows them to repay the debt with inflated dollars and reap the benefits of rising prices.
Portfolios will be affected differently if inflation is high. Some investors may want to increase their holdings periodically in order to maintain a healthy level of inflation, while others may prefer to hold onto their investments for longer periods of time in order to avoid becoming too aggressive with their portfolio growth.
Investors who have a heavy allocation to bonds in their portfolio are likely to experience greater inflation-related losses than those with a more balanced mix of stocks and bonds.
It is important to consult with a financial advisor if you are considering increasing your holdings in your portfolio. A financial advisor can help you determine the right strategy for your individual situation and investment goals.
Since most of us are long-term investors, we should stay the course and make small tweaks to our portfolios based on current inflation or market conditions. These small changes will help us ride out any bumps in the road.
No matter how you look at it, the current economy is taking a lot longer than anticipated to get back on track. Inflation has been steadily increasing over the past few months, making everyday life more expensive for many people.
The storm won’t last forever, but it could stay a while and cause serious damage while it’s here. Protect your bottom line by taking the necessary precautions.
Looking for ways to keep your money safe? Check out some of the six opportunities listed above by FXCM Market insights! Each one offers a unique and exciting way to save money.