How to Manage Your Money If Inflation Flares

Price increases, or inflation, can be thought of as the gradual loss of purchasing power. The average price increase of a selection of products and services over time can serve as a proxy for the rate at which buying power declines. A unit of currency effectively buys less as a result of the increase in pricing, which is sometimes stated as a percentage. Deflation, which happens when prices fall and buying power rises, can be compared to inflation.

Even while prices are still going up for products and services, the fact that we are unsure of how long they will stay up or exactly how to respond financially might be more painful.

For the average consumer, rising costs may mean reducing any indulgent spending to avoid taking a serious financial hit. However, if you invest, you're probably more worried about your funds depreciating in the market. 
The main advantage of investing during an inflationary period is to maintain the value of your assets. A desire to maintain the growth of your nest fund might be the second justification. A tried-and-true way of building a portfolio is to spread the risk among a number of holdings, which may be used for both asset growth and fighting inflation.

Reducing Rates on Other Debts

You might budget for debt repayment on credit cards, student loans, or other lines of credit in addition to a mortgage. When higher prices start to take effect, consider paying off debt or at least making it less expensive.

If you have credit card debt, consider checking your bank for low-rate personal loans or balance transfer deals with 0% APR. You may have more time to pay off your debt with an interest-free balance transfer. Meanwhile, personal loans might assist you in consolidating high-interest bills at a reduced fixed rate.

You might be able to refinance your student loans to get a better rate and more reasonable monthly payments. However, bear in mind that converting federal loans into private loans necessitates giving up some advantages and protections.

Investing in Assets that Retain Value During Inflation

While the consequences of inflation on the economy and the value of assets are unpredictable, history and economics provide some general guidelines. The value of fixed-rate debt securities is negatively impacted by inflation because both interest payments and principal repayments lose their value. After accounting for inflation, lenders are actually losing money if the inflation rate is higher than the interest rate. For this reason, investors occasionally pay close attention to the real interest rate, which is obtained by deducting the inflation rate from the nominal interest rate.

Short-term debt is less susceptible to inflation than longer-term fixed-rate debt since the impact of inflation on the value of future repayments is proportionally smaller and doesn't compound over time.

The assets that are certain to provide more income or increase in value as inflation rises perform best under inflation. Examples include a rental property with recurring rent hikes or an energy pipeline with inflation-linked pricing.

Examples of Assets that Retain Value During Inflation

Real estate is a common choice since it generates more revenue through rentals while becoming a more useful and well-liked store of value as a result of inflation 

Real estate can be purchased directly by investors or through the purchase of REIT or specialised fund shares. During the 1970s chronic inflation epidemic, real estate performed extremely well. But as was shown in 2007–2008, real estate is likewise susceptible to rising interest rates and financial crises. Additionally, raising interest rates is the traditional monetary policy reaction to high inflation.

REITs were introduced in Bursa Malaysia in 2005 and was part of the government's efforts to boost the country's real estate market by providing a new avenue for investors to participate in the property sector. Fast forward today, the market has grown significantly, with a number of new REITs being listed on Bursa Malaysia. Today, the Malaysian REIT market is one of the largest in Asia, with a diverse range of REITs investing in various types of real estate assets.

Debt Obligations and Loans

Additionally, leveraged loans may serve as inflation hedges. As a result of their floating-rate nature, banks or other lenders may increase the interest rate charged to ensure that the return on investment (ROI) stacks up with inflation.

Alternatively, there are structured pools of mortgage-backed securities (MBS) and collateralized debt obligations (CDOs), which are loans to consumers and consumer loans, respectively.
Investors purchase securities whose underlying assets are loans rather than owning the obligations directly.

Leveraged loans, MBS, and CDOs are complex, potentially dangerous financial products that frequently have high minimum investment requirements. Purchasing a mutual fund or exchange-traded fund (ETF) that focuses on these income-generating securities is a viable option for many retail investors.
Exchange-Traded Funds (ETFs) are a popular investment option in Bursa Malaysia. Investing in ETFs in Bursa Malaysia offers several benefits to investors, including diversification, lower transaction costs, investment flexibility in time and transparency.

Other Ideas for Investing During Inflation

Commodities

Oil, metals, and agricultural products are examples of raw materials with prices that typically rise in tandem with inflation, making them effective hedges against it. 
The relationship between supply and demand, which is very unpredictable, heavily influences commodity pricing. In addition to investors using leverage, this makes them a dangerous investment because there is a great probability of success but also a large risk of failure.

Gold

While gold doesn't always provide short-term protection from rising inflation, it typically does so in the long run (meaning decades).

Stocks

Stocks have a decent chance of keeping up with inflation, although not all equities do equally well in this regard. For instance, in inflationary times, high dividend-paying stocks sometimes experience the same kind of heavy losses as fixed-rate bonds. Investors should concentrate on businesses, such as those in the consumer staples category, that can pass on their increased input pricesto customers.

One of the largest bourses in ASEAN, Bursa Malaysia operates and regulates a fully integrated exchange offering a comprehensive range of exchange-related facilities.