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    Businessman stabilize inflation

    How to Offset Inflation

    Ryan Fuhrmann
    Personal Finance

    Inflation represents the extent to which prices for goods and service increase over time and erode the purchasing power of your hard-earned dollars. Central banks, such as our Federal Reserve, across the world spend much time worrying about keeping inflation in a tight range as both deflation and inflation can be bad for business and economies.

    A concern these days is that interest rates are too low and will encourage an unnecessarily rapid economic recovery that will eventually stoke inflation.

    How to beat inflation: good and bad investments

    Here are some ways to whip inflation if you are worried how it might impact your finances.

    Gold

    For starters, gold is considered a hedge to inflation and even though its value is reaching all-time highs, it will likely keep rising along with inflation fears and if/when it actually occurs.

    Real estate and commodities

    Hard assets such as real estate and commodities are also seen as secure investments during inflation because they represent physical assets that are "real" and whose value can’t be easily eroded.

    Government and municipal bonds

    Government and municipal bonds are not the assets to hold as inflation eats away at their returns. Treasury inflation protected securities, or TIPS, have a variable interest rate component meant to rise when inflation (which is measured by the Consumer Price Index (CPI) does, so consider these in your portfolio.

    Other investments

    The key metric when investing in bonds is real interest rates, which subtract out the negative impact of inflation on returns. Stocks can also protect against inflation provided you invest in firms that are able to pass along higher prices to their customers and protect their profits.

    More articles from AllBusiness.com:

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    Your best hedge to beat inflation

    Your own salary is perhaps the best inflation hedge as companies habitually award annual cost-of-living adjustments to protect the purchasing power of your salary. For self employed small business owners, pricing power is key so that goods and services can rise along with inflation.

    In one sense, inflation means rising costs, so with moderate levels of inflation, keeping costs minimized is also important. All bets are off when hyperinflation rears its ugly head and has occurred in countries such as Brazil in the 1980s. Fortunately, hyperinflation is rare in developed countries such as the United States.

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    Profile: Ryan Fuhrmann

    Ryan C. Fuhrmann, CFA, has a background in portfolio management, business valuation, and is familiar with a broad array of industries given his experience from a generalist perspective.

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