How can you profit during inflation? Leverage and Hedging!
Simply follow the bank’s game:
1. Borrow money from the bank at a fixed rate
2. Buy a cash flowing asset that covers the debt payment and hedges against inflation
3. Use less of your own money because it increases your return on investment
In an inflationary environment, if the debt payment is fixed, it becomes less of a cost as money loses purchasing power but the investments and income grow, as long as you purchase assets that hedge against inflation. E.g. when you purchase an investment property, the debt payment stays the same while my rents rise due to inflation. This creates more cash flow. I owe the bank only the agreed fixed payment that will not rise. So, the higher rent at same fixed cost, results in higher profits.
The same counts for businesses. When the cost of goods rise for consumers, businesses can adjust their pricing and benefit from inflation.
Investing for cash flow is the safest and soundest strategy that will serve you well in an inflationary economy. It’s the best way to create wealth.
Sven Franssen