Inflation hits 9%! Here’s how I’m beating it with top stocks

Jon Smith notes the 9% inflation figure from the UK today and explains how he’s dealing with it via top stocks from the FTSE 100.

Inflation in newspapers

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The April reading of inflation from the UK came out earlier this morning. It was up 2% from the 7% of the previous month, meaning that it hit a 40-year high of 9%. With inflation showing few signs of slowing down, I need to find smart to find ways to stop my excess cash being eroded in value. Here’s how I’m thinking of using top stocks to achieve this.

Finding income via dividends

Firstly, I need to make an important disclaimer. Inflation is a variable that’s hard to predict. So although my numbers and ideas here are based on inflation being 9%, this will change in the future.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

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The first way that I’d use top stocks to help combat inflation is via dividends. I like this method because it allows me to see clearly what my actual net return is after taking into account inflation.

For example, let’s say I invested £1,000 into a top income stock like Persimmon. The property stock currently has a dividend yield of 10.98%. Assuming that the dividend per share stays the same, in the next year, I’ll earn £109.80 in dividends. Even after losing 9% to inflation, I’m still up almost 2% (£20).

Income stocks allow me to offset high inflation and preserve the value of my money. Hopefully, if the share price also increases, then I can make an even higher net gain when I come to selling the stock.

The main concern I have with this method is the unpredictability of future dividends. It could be the case that a housing downturn causes Persimmon to reduce the dividend, to the point that I’m not breaking even. To try and reduce this risk, I’d rather invest in a host of dividend-paying stocks to diversify.

Top stocks for share price gains

A second method I can use to try and beat inflation is picking top growth stocks. Over the past few weeks, there’s been a real tree shake in the stock market. Volatility has been high, and some stocks have seen a tumble. Yet in the long run, I still believe in the potential for multiple companies to outperform.

For example, over the past month Aviva, Scottish Mortgage Investment Trust and Anglo American have all fallen at least 15% in value. If I buy these top stocks now and enjoy a strong rally in the next year, I can use these gains as a way to offset inflation.

If I invested £1,000 in a mix of these three stocks and had an average gain of 10% over the next year, the share price rise would benefit me. Clearly, if I wanted to consolidate such gains, I’d need to sell the stocks to cash in. But the main principle here is that if I buy undervalued firms now, I can use potential gains as a safety net against high inflation.

The point I need to be conscious of is that the share price could fall, in which case I’d be losing not just from inflation but also from my capital depreciating. However, this is a risk I have to accept.

I’m considering buying all the above mentioned top stocks now as part of my inflation plan.

Inflation Is Coming: 3 Shares To Try And Hedge Against Rising Prices

Make no mistake… inflation is coming.

Some people are running scared, but there’s one thing we believe we should avoid doing at all costs when inflation hits… and that’s doing nothing.

Money that just sits in the bank can often lose value each and every year. But to savvy savers and investors, where to consider putting their money is the million-dollar question.

That’s why we’ve put together a brand-new special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation…

…because no matter what the economy is doing, a savvy investor will want their money working for them, inflation or not!

Best of all, we’re giving this report away completely FREE today!

Simply click here, enter your email address, and we’ll send it to you right away.

Jon Smith and The Motley Fool UK have no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

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