How to Make Your Finances Race Past Inflation with Scalable Income
The following statistics tell a dull story of the US economy for 2021.
In December, inflation reached a 39-year high. In November, the consumer price index (CPI) rose 6.8% annually–almost the highest jump in four decades–and it rose 7% overall, which is the fastest pace since 1982.
Economists are warning of even higher inflation in 2022, and investors are taking this seriously. Most are being protective with the allocation of their finances, investing in assets such as Treasury Inflation-Protected Securities (TIPS), real estate, and low-risk stocks.
However, while it might seem like the time to be protective because of the rate at which inflation is increasing, these low-return assets may not be able to keep up and defend your finances.
Some investors are aware of an alternative new industry that is gaining ground at unprecedented speed: online business. Instead of being protective, they’re taking advantage of this industry’s growth to actively scale their portfolios and outpace inflation.
But how are these investors faring compared to more protective investors?
Traditional Inflation-Hedging Assets
TIPS are provided by banks and brokers to protect finances against high inflation. They work on the measurement of the CPI; the TIPS’s principal value increases with inflation and decreases with deflation.
Typical yields for TIPS are pretty low at around 2%, which makes them more sensitive to interest rates when compared to bonds of a similar maturity.
If you hold onto TIPS for five years, you could see a 5% ROI, which is considerably lower than other asset classes.
When investing in property to hedge inflation, investors tend to take positions in mutual funds, real estate investment trusts (REITs), and exchange-traded funds (ETFs) as opposed to investing chunks of capital in fewer properties.
Because of the nature of the real estate industry, with leases periodically resetting higher, investors tend to benefit from this type of investment during inflation.
If we look at the average annualized returns of REITs over a 27-year period as an example, the data show the following average ROI for REITs:
- Mortgage REIT: 5.7%
- Retail REIT: 8.3%
- Diversified REIT: 6.8%
The fact that these data were taken over a 27-year period tells us that inflation-hedging real estate investments are most certainly a long-term strategy.
Investors set some of their capital into equities during inflation because companies are able to ride the wave of inflation. It’s said that they can offset inflationary increases by increasing the pricing of their products and services, even though it would appear that an increase in pricing would result in fewer sales.
Nevertheless, it’s their flexibility as an asset that makes many believe that if you make long-term investments in stocks, your finances can outpace inflation.
It’s nearly impossible to find a concrete average ROI figure for S&P 500 stocks as there are too many variables and the stock market’s results can vary dramatically from year to year. However, those who have tried to draw an average figure for the past 10 years have arrived at an 11.96% average annualized real return (adjusted for inflation).
Our Takeaways on Traditional Inflation Hedges
The advice of market and investing experts is usually to build a diversified portfolio.
The assets listed above have been used to protect against inflation for many years, so most would advise including one or more of these assets in a portfolio as they are safe investments when compared to other assets with higher volatility.
However, while safe, these investments don’t do much to improve your purchasing power, meaning that your cash becomes weaker.
If you consider the current pace of inflation in the US, which accelerated to 7% in the last month of 2021, the assets above aren’t exactly going to help you race past inflation. Therefore, we would argue that you should also make room in your portfolio for scalable income.
How to Race Past Inflation with Scalable Income
Most investment assets are static and passive. You acquire the asset and wait for it to increase in value before selling it for an ROI, sometimes five, 10, or more years in the future. In contrast, online businesses are active and scalable investments.
While “active” is a word that can scare some investors away, when you consider the time and capital input with the potential ROI, they can be some of the biggest wealth-building assets in your portfolio and outperform the rest.
Also, taking into consideration the precariousness of the current inflationary environment, it’s a good time to consider income-scaling options for your portfolio.
As with all assets, it’s important to understand how online businesses work before acquiring one, but despite them being an active asset, there are newbie-friendly business models that you could take over and successfully scale with the help of your own team of employees or virtual assistants.
Through your past experiences, you’ll likely have built some transferable skills that will allow you to step into this industry. For example, if you’ve ever worked in retail logistics and been involved in a supply chain, then you’ll have a good understanding of the core of the ecommerce business model, even better than some entrepreneurs who’ve built successful ecommerce businesses from scratch.
Online businesses are one of the few assets that, outside of industry regulations and shifts, you have control over since you own 100% of the business. And you can mitigate risk against industry regulatory and market shifts by strengthening your business through methods such as diversification of its income streams.
With stocks and REITs, your income is dependent on the company that operates your asset. With an online business, you have control over the performance of the asset and are therefore able to scale your income.
What’s more, you’re able to earn double returns on your asset. You’re earning ROI as you’re actively scaling your asset since you receive 100% of its income, and then you receive the capital reward when you sell your business for a profit, whereas with single-return assets like stocks, you only make an ROI when you sell the asset.
The current state of the online business industry will also accelerate your wealth because the market has never been hotter. The average value of online businesses overall has consistently been increasing year over year, but 2021 was an astronomical jump, and we’re not seeing signs of this growth slowing down any time soon:
- 2018–2019: 7.69%
- 2019–2020: 7.47%
- 2020–2021: 25.5%
Increasing your income with digital assets will help you beat rising inflation costs as your money will be growing faster than the inflation rates. Let’s explore some examples of how this investment strategy looks in practice.
Three Examples of Income Scaling in Action
The following studies were conducted on real transactions that happened in our marketplace, where we collect troughs of data on digital asset trade.
Every Flipped Business In Our Marketplace
In this data study, we dug through the sales of 41 recorded flips on our marketplace.
The majority of the businesses in this study were content sites: a website, like a blog, that hosts content that generates income through affiliate marketing, display advertisements, content collaborations, and digital courses and books. Also included in this study were ecommerce businesses, online stores that sell physical products.
These are the data we collected from the study:
- Biggest flip: 1,164% ROI
- Fastest high-ROI flip: 199 days (429% ROI)
- Largest double-flip: 256% total ROI
However, the most important data point is that more than 80% of the flips resulted in a positive ROI.
Content Sites ROI Study
In this study, we assessed the acquisitions of 30 content sites on our marketplace.
These are the key data we collected:
- Equal or positive ROI: 63% for up to 24 months after purchase
- Biggest income increase: 185% (in less than 1 year)
- Fastest flip: 30% ROI in 1 year
- Biggest flip: 70%
For the sites that decreased in revenue, 63% of the buyers focused only on creating content and backlinks or did nothing to the site at all. With this scalable income strategy, you don’t let your investment sit; it’s an active investment.
Amazon Fulfilled by Amazon (FBA) Businesses ROI Study
In this study, we analyzed the acquisitions of 31 Amazon FBA businesses on our marketplace.
Amazon FBA is an ecommerce business model whereby business owners sell their products on the Amazon marketplace while utilizing Amazon’s powerhouse logistics network.
These are the key data we found:
- Equal or positive ROI: 71% for up to 24 months after purchase
- Biggest income increase: 500%
- Fastest investment ROI: <1 year
Amazon FBA businesses, as digital assets, are currently the most desirable and most actively traded in the industry.
How Are You Going to Inflation-Proof Your Finances?
As you can see, the potential rate of return of online businesses is considerably higher than that for other more traditional assets. And by implementing a scaling strategy, you can make your income actively increase instead of letting it sit under the cloud of inflation.
Take a look around our marketplace to see which type of scalable income assets we have for sale. And if you ever need any personal guidance, you can always give one of our expert business advisors a call for free.
If you’re not too excited about the idea of actively managing a digital asset but still want to access the benefits of income scaling, investing through EF Capital might be a good point of entry.
EF Capital allows accredited investors to build a completely passive and diversified portfolio of fractional pieces of digital assets. Professional and vetted operators run your assets for you, and you receive quarterly distributions.
If you’d like to find out more about EF Capital then check out our explainer page to see how it works.