1. Invest your capital in good businesses with low capital needs
It will be beneficial to have long advocated for owning businesses that give back high returns on the capital invested in the business. During inflationary times, businesses with low capital requirements that are able to maintain their earnings should fare better than ones that are required to invest more money at ever-higher prices just to maintain their position.
Buffett once named or called the challenge posed by inflation to "running up a down escalator."
2. Look out for companies that can raise prices during periods of higher inflation
The most important single decision in expanding a business is pricing power. You've got the power to raise capital without losing business to a competitor, and you've got a very good business.
If a business can increase its prices, it has a big benefit during periods of high inflation because it's able to offset its own increasing costs.
An unregulated toll bridge could be an ideal asset to own in an inflationary world because you would have already made the bridge and could raise prices to offset inflation. You constructed the bridge in old dollars and you don't have to keep replacing it.
3. Take a look at TIPS
Treasury Inflation-Protected Securities, shortly named as TIPS, is another investment strategy for investors who are concerned about increasing inflation. TIPS pays investors a fixed interest rate twice a year, but the principal amount is adjusted for inflation, as calculated by the consumer price index.
4. Invest in yourself and be the best at whatever you do
Investing in yourself is one of the best ways to maintain your purchasing power over a certain period of time, Buffett told these to shareholders in 2004. The top surgeon or lawyer in your city can gain benefits from an education paid for in old "dollars" but he or she is able to price their services in current or new dollars without having to re-educate themselves.
Assume bulking up your resume by learning new strategies through online resources or a local college. Pursuing advanced degrees can be costly, but they can also help to grow your knowledge base and can make you an indispensable employee in the future. Growing your value to your employer and its customers will help you command your fair share of earnings over a certain period of time.
5. Steer clear of traditional bonds
Bonds are not the place to be nowadays. With interest rates still near historically very much low levels, bond investors could be hurt in an inflationary environment.
It has been noticed that buying a 10-year bond yielding 2 percent is similar to paying 50 times earnings for a business, a key difference being that the bond's earnings can't increase.
"Fixed-income investors worldwide - if pension funds, insurance companies, or retirees - can face a bleak in the future," Buffet said.
6. Limit your wants
Buffett's business partner and vice chairman of Berkshire Hathaway, Charlie Munger, has his own take for how to deal with periods of high inflation: "One of the great defences to being worried about inflation is not having a lot of silly requirements in your life," Munger said this to Berkshire shareholders back in 2004. "In simple words, if you haven't made a huge artificial demand to drown in consumer products, why, you have a considerable defence against the vicissitudes of life."
To help with this, you can track your expenses through a budgeting app. This will help you to understand how you're now spending your money and can help identify problematic spending bursts before they become an addiction.
