What is a good investment strategy during high inflationary periods?

I often write answers on Quora, where I am the most viewed writer for investing, wealth and personal finance, with over 231 million views in the last few years.

On the answers below, taken from my online Quora answers, I focus on a range of topics including:

  • What is a good investment strategy during high inflationary periods? Commodities, stocks, bonds or real estate?
  • Is it really true that very rich people, such as Mark Zuckerberg, are very frugal, or is that a misconception? What could motivate people like that?
  • What do I wish I had known at age 19-20, including in business, investing and life?
  • How can you get rich quickly through an online business, or is the slow approach better?

If you want me to answer any questions on Quora or YouTube, or you are looking to invest, don’t hesitate to contact me, email (advice@adamfayed.com) or use the WhatsApp function below.

What is a good investment strategy during high inflationary periods?

Firstly, it has to be remembered that we are currently in a low-inflation period.

Inflation has consistently been coming down. It was lower in the 1980s than the 1970s, lower in the 1990s than in the 1980s, lower in the 2000 than the 1990s and lower in the 2010s compared to the 2000s.

In fact, some areas like Japan and the Eurozone are struggling to get even 2% inflation per year.

We also have to remember that:

  • We are living in different times. If inflation did become a big issue again, it is unlikely interest rates would be as high as the 1970s or 1980s.
  • There is no indication that high consumer inflation is on the horizon. QE and 0% interest rates didn’t cause inflation in 2008–2009. The same people predicting high inflation now were predicting it then. It is true that there are some new forces at play, such as the move towards localizing supply chains, yet there are many new deflationary forces as well. Look at tech. It was a huge part of our lives in 2008–2009, but nowhere near as big as now. Netflix + a beer or soft drink from the supermarket costs about 50x less than going to the movie theatre and a bar.
  • Asset price inflation and consumer price inflation aren’t always the same thing. There was big asset price inflation from 2008-present, but not big consumer inflation. The same thing could happen again.
  • The past is no guarantee of the future.

Anyway to answer your question directly, fixed-return assets such as cash tend to perform badly under inflationary conditions for obvious reasons.

What tends to perform well is

  • Inflation-linked bonds.
  • Real estate, including REITS
  • The stock market. Not every stock. Stocks that generate cash rather than consume it will do better.

If those investments haven’t performed well during inflationary periods, often they were due a fall anyway.

Ultimately, it is common sense. If inflation is running at 1970s levels (over 20%), people tend to rush to get rid of it, before it loses more value.

When inflation is running at 2%-3% like in the 1990s/early 2000s, but the banks pays you 2%-5%, people might be satisfied with the bank rates.

In comparison, when inflation is running at 0%-3% (now and depending on the country), but the banks are giving 0.1%, people want to invest their money for obvious reason.

As a final comment though, I would mention that just as much money has been lost making wrong moves and worrying about inflation, than has been lost from inflation directly.

Let me give you the most recent example and the 2008–2012 period, but especially 2010–2011.

What was happening in 2010? Inflation was increasing as oil hit over $100 a barrel.

It even hit over 5% in the UK:

Commodities were skyrocketing. Gold and silver were hitting record highs on an almost monthly basis.

Emerging market currencies were getting stronger against the USD. People came piling in expecting more of the same.

What has happened in the last 10 years? Commodity price weakness, including in gold, which is below it’s 2011 peak.

The USD has strengthened. It has fallen recently but is stronger against most currencies than in 2010.

Inflation was falling long before COVID-19. US stocks have beaten emerging ones, and emerging market currencies have been battered until recently.

These trends won’t continue forever, yet the last ten years should have taught people a lesson.

I am also not saying people shouldn’t be worried about losing to inflation. They should.

Getting 0.1% in the bank when inflation is running at 2% per year should feel as painful as a direct loss.

Just don’t assume that assets like commodities will outperform or anybody can predict when inflation will return in a big way.

That will be failing to learn the lessons from “the class of 2008–2011”.

The best strategy therefore is often to not overthink and analyse things, and stick to a long-term strategy.

If you are in your 20s or 30s, you should be focused more on stocks than bonds, regardless of whether inflation is at 2%, 5% or 10%.

Why do wealthy people like Mark Zuckerberg live simple lives even though they can afford almost anything they want?

I don’t know him personally, but I don’t think Mark Zuckerberg lives a simple life in all ways.

I am sure he has his pleasures he overspends on. Your general point is correct though.

Wealthy people, not even those as wealthy as him, tend to be more frugal than most people assume.

There are many reasons for this, but one reason is people stop caring as much about impressing others once they have “made it”.

Money can buy you many things. One of the things that wealth can buy you is the ability to not care as much about what other people think. That is liberating.

Beyond that, remember Maslow’s Hierarchy of Needs:

Material needs are important, but they are at the bottom of the list. Once you have achieved a certain level of comfort, it makes sense to care more about time, relationships and other things listed above.

Often times, people who assume that they would lead a “rock star lifestyle” if they got rich, have never really had money for any length of time.

If they did, they would understand that money can buy more important things than overconsumption.

After a few years it soon gets old.

What are the things you wish you knew before turning 20?

If I was 19–20 again today, I would tell myself that:

  1. Time is the most important resource. Use it wisely. It affects everything long-term, including your health (physical and mental) and wealth
  2. Care about health even when you don’t need to. It is your future wealth and happiness.
  3. Invest when you are young, without speculating. Get into that habit. It doesn’t matter if you start with small amounts.
  4. Remember that the world is moving towards a technological future. Learn more about technology and how it affects business.
  5. Experiment with things. It doesn’t matter if you fail sometimes.
  6. Don’t care too much about what people think in university. You won’t know most of them once you are in your 30s anyway, and few people really care anyway. Focus, instead, on the key people. Your parents, grandparents who might die or be in homes in ten years, real friends etc. Experience with tell you that most “friends” are just situational friends, or shallow friends. Really appreciate those real friends

7. Today’s scandal is tomorrow’s fish and chip paper. Things come and go. There is still no such thing as bad publicity, even though some naive people think social media has changed that. Don’t take things too seriously.

8. Never apologize for who you are.

9. Take as many calculated risks as possible, which is quite different to speculation.

10. Don’t just be obsessed with the most charismatic people. Some of the best friends, and people, you can meet, don’t shine brightly on the first meeting.

11. Spend time with people in their 20s, 30s, 40s, 50s, 60s and 70s….and not just people who are your family. Having acquittances from different age groups will give you perspective.

12. Focus on the most important things in life only. Health, relationships, building up skills and wealth which indirectly helps our health (especially mental health due to becoming more secure). Most things don’t matter that much.

13. Focus on experiences and not things.

14. Live overseas at least once in your life.

15. Human nature is more emotional than rational. Arguing with logic when somebody is upset is pointless. Better to wait for things to calm down. Let’s say if somebody is upset (like a friend or for that matter a partner) and they want out or have another demand. It is far better to wait 2–3 days and say “do you really want to do this” than argue with logic on the day of the “event”. This is partly linked to my previous point about today’s scandal is tomorrow’s newspaper. When emotions calm, you are more likely to get some kind of result which is better for everybody, even if you will sometimes fail, and some people take it personally for years.

15. Play the numbers game. You might have to try many ideas for one to work in business.

16. Don’t be afraid to challenge norms when you start working. You are more likely to get extraordinary results if you take extraordinary actions. You are more likely to be normal, and get normal results in business, if you act like everybody else and take normal actions.

17. What you study at university isn’t as important as learning how to learn and making university the start of the learning process, not the end.

The above list isn’t extensive. I also followed about half of these pieces of advice, but sometimes I only did it subconsciously.

How do I get rich fast through an online business?

The only way I have seen a lot of people get rich fast through online companies is people who already have experience.

In other words, successful real estate agents who are salaried and then start their own online real estate business. Successful lawyers who do the same.

The benefits of this approach are obvious. You are using, and leveraging, your existing knowledge, experience and sometimes contacts.

So, it isn’t get rich quickly, as many people have spent years working for somebody else.

It is merely moentizinhg what could have been monetised months, or years, before in some cases.

Often times, people are just afraid of going from employed to self-employed, regardless of whether it is an online or bricks and mortar business.

This approach works especially well if you have a skill which few people have.

For example, most people can’t be doctors, and few doctors in most countries want to start their own clinic.

If this method isn’t an option for yourself, I would just play the long game, and focus on getting rich slowly from an online business.

The reason is simple enough to understand – if there was a way where everybody could get rich quickly online without any special skills, experiences or qualifications – then everybody would do it.

The fact that these things can be hard, and long, will protect you if you make it, as it creates a barrier of entry.

If there is no barrier to entry, and making money is easy, then new competitors will just flush the market, and then making money will be hard again.

Pained by financial indecision? Want to invest with Adam?

Financial Planner - Adam Fayed

Adam is an internationally recognised author on financial matters, with over 231.2 million answers views on Quora.com and a widely sold book on Amazon

Further Reading 

In the article below, taken from my online Quora answers, I spoke about:

  • I was asked “why don’t you desire to live in a million-dollar home?. I explained in detail why I don’t.
  • Do wealthier people really live longer and healthier lives, or is it a myth?
  • With GameStop dominating the news, will retail investors influence the stock market in 2021, or are institutional investors still king?
  • Is it really possible to be so rich that you can never go broke again?

To read more click below

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