The UK is in the midst of an economic crisis, the likes of which it hasn’t seen in nearly four decades. The rate of inflation has been modulating above 9% for months; this is partially a result of the steep increase in energy bill costs for businesses and homeowners alike, but can also be attributed to rising import costs due to Brexit. As inflation rises, spending power falls, threatening the value of estates across the nation.
Usually, the advice for weathering short-term economic inflation is to trust in cash. This is because, while certain investments can see their value diminish in the short term, interest rates typically rise to mitigate the impact of inflation on raw currency – making cash safer than investment in certain markets. But the current economic crisis, and the sheer size of the inflation rate rise, make holding cash uniquely dangerous. What are some shrewd ways in which you can protect your finances from the current economic situation?
Stocks and Shares – Going Long
The rising rate of inflation has been a harbinger of economic recession since May of 2022. A rising cost of living leads to reduced expendable income for most households, causing a significant reduction in overall spending and business decline as a result.
But a recession can be well weaponised by the shrewd investor, despite the falling value of investments themselves. Most of the businesses on the stock market do not face an existential threat in the recession and will survive a quarter of the shrinking value. Indeed, the vast majority will see their value increase significantly after the recession – rendering their share value at present a golden opportunity to achieve long-term wealth growth.
Stocks and Shares – Going Short
There is another, more rapid way in which you can weaponise the current situation to weather inflation. Wealth managers utilise this tactic regularly as part of their active and diverse portfolio management, to maximise returns and provide value to their customers: ‘going short’.
Shorting a stock or asset essentially means profiting from a decrease in value, as opposed to an increase in value. A broker borrows shares at a pre-agreed rate of interest, sells them immediately and then buys them back at their new, lower price. They then return the shares and pocket the difference. A recession is a unique event in that the risk of shorting is minimised.
Investment in Property
Lastly, and perhaps most accessibly for the individual investor, the property can serve as a robust and highly useful breakwater for shifts in economic security. Property values have been consistently rising for some time, and recently experienced a significant rise in growth owing to ever-increasing demand. Even as the housing market faces potential difficulties in the emerging mortgage crisis, the long-term outlook for property ownership beats inflation overall.
OTS News on Social Media