Inflation is an economic phenomenon that directly affects every aspect of managing your investment portfolio. As the prices of goods and services rise, the purchasing power of your money declines. This effect goes beyond household expenses — it also alters how we should manage our investments. How exactly does inflation affect your investment portfolio, and what can be done to mitigate its negative impacts?

The Impact of Inflation on the Value of Money

One of the main challenges posed by inflation is its effect on the value of money over time. For example, if inflation is 5% in a given year, 100 shekels today will be worth only 95 shekels the following year. Your money is effectively losing value, and you need to ask yourself if your investments are keeping pace with the rising cost of living.

Deposits and Bonds – Risk of Losing Value

Solid assets like bank deposits and government bonds are generally considered safe investments, but they may not deliver the returns needed in times of high inflation. For example, if a government bond in Israel yields 3% annually, while inflation is 5%, such an investment does not provide real growth. In fact, it effectively “loses” 2% per year.

Stocks – Finding Opportunities in High Inflation

Investing in stocks can be a good opportunity during periods of high inflation, especially when focusing on companies that can raise prices without losing customers. Companies of this type are likely to deliver higher returns than inflation.

Companies That Perform Well During High Inflation:

1. Teva Pharmaceuticals (TEVA)
   Teva is one of the largest companies in the pharmaceutical and healthcare sector, and in recent years, it has benefited from price increases in the pharmaceutical industry. During periods of high inflation, Teva’s stock performed well due to the growing demand for medications.
2. Apple (AAPL)
   Apple is an excellent example of a company that can raise prices while maintaining customer loyalty. Over recent years, Apple has added new services and features, such as iCloud and Apple TV+, and has consistently raised the prices of its products without losing its customer base. The company demonstrated excellent performance even when inflation was high, which contributed to its success in the stock market.

Real Estate – Natural Protection Against Inflation

Real estate is considered an asset that retains its value over time, especially when it comes to income-generating properties. The rise in property prices in recent years has led to increased values, particularly in major cities. Residential, office, and commercial properties, especially in prime locations, can provide effective protection against inflation.

Commodities and Crypto – Additional Options for Preserving Value

Commodities like gold, silver, oil, and steel are known for their ability to protect value during inflation. Specifically, gold tends to rise in price when the value of local currencies declines. Over the past decade, gold has shown significant increases during times of high inflation.

Additionally, digital currencies like Bitcoin and Ethereum have demonstrated remarkable price increases during periods of high inflation, making them an attractive option for investors seeking higher returns, though the high volatility of the crypto market must be considered.

How to Tackle Inflation?

The first step in combating inflation is diversification within your investment portfolio. Properly allocating investments between stocks, solid assets, real estate, and commodities can minimize the risks associated with inflation and maximize returns. Investing in assets that can increase their value during inflation, such as stocks of companies that can raise prices or income-generating real estate, can be the right strategy to preserve value.

The final tip is to stay vigilant and keep updated on economic developments. The more aware you are of changes in the economy, the better positioned you’ll be to make wise decisions for your portfolio and preserve your purchasing power over time.

Conclusion

Inflation is undoubtedly a challenge for investors, but it also presents opportunities to create strategic plans that can safeguard your financial future. Diversifying your portfolio, focusing on assets that can thrive during inflation, and continuously staying informed about market changes are key tools for preserving the value of your money and maximizing returns over time.