Inflation: Hedging Against the Biggest Enemy of Investors.

surviving inflation periods

Periods of inflation aren’t the best of times for any economy; the harsh stings of it can be felt by almost everyone in the country and unfortunately it occurs in most parts of the World and U.S. economies; although it may slowdown in times of recession.

Inflation will steadily and at a fast pace eat into your investments and profit as an investor unless specific steps are taken to hedge against the devaluing currency.

Since the 2008 financial crisis, the Federal Reserve has printed more than $2 trillion US dollars under a program called Quantitative Easing. The policy is intended to stimulate economic growth and bring down unemployment rates.

inflation groceries chart

Till today, there has been little or no economic disorder caused by the additional money the Fed has printed being in circulation. Some argue that is because banks hesitate to lend out the money that they are receiving. Putting aside a debate about the success of the program itself, one potential risk of Quantitative Easing is that as the economy stabilizes and banks begin lending at a greater rate, we could see a surge of money being introduced to the market resulting in inflation.

There are several strategies to help you and your investments be on the safe side of the wall during inflation, while no investment is perfect, the following actions will help protect a portfolio from devaluation in times of high economic hardship.

Purchasing Gold as a Store of Value

Gold has consistently maintained its value in terms of real, during periods of economic disorder it has always adjusted with the dollars over time. Investing in gold may not make much of a profit, but it will protect an original investment from losing its value in a high-inflation environment. For this reason, the price of gold frequently skyrockets when inflation is on the rise. It is possible to buy gold through mutual funds, though you could also physically purchase gold to keep yourself.

inflation pressure

 

Investing in Commodities

Other than gold, commodities such as oil or agricultural products frequently are good investments in times of high inflation. The price of the underlying commodities will rise in nominal dollar terms as inflation rises, which ensures your investment is protected. The easiest way to invest in commodities is to invest in a commodities mutual fund.

Invest in Foreign Currencies

Buying foreign currencies is riskier than buying gold or other commodities. This is because other nations aren’t immune to inflationary pressures and has its own economic wars to fight and win.

However, for the savvy investor willing to do some research, currency arbitrage may be a good investment strategy. There are two keys to successfully buying foreign currencies to hedge against inflation.

Firstly:

Find countries with good economic outlooks, otherwise the investor’s foreign currencies will simply lose value just as the dollar would.

Secondly:

Buy the currency of countries that have floating exchange rates with the dollar.

That will allow the foreign currency to appreciate against the dollar, protecting the investment from inflationary losses.

Real Estate VS Inflation

Commercial property is a unique investment class when compared to other hard assets in that not only does it typically preserve its value during periods of inflation, but leased commercial property can also be an income producing asset, paying dividends back to investors. For these reasons, real estate has historically been attractive to investors looking to protect themselves from periods of inflation.

Invest in Treasury Inflation-Protected Assets (TIPS)

Other strategies listed for curbing inflation involves making strategic investment out of the U.S. dollar, investing in treasury inflation-protected securities (TIPS) is a way to protect your investments in times of high inflation, while keeping investments in the dollar.

These TIPS bonds are issued by the U.S. government, and their interest rates are tied to the current rate of inflation.

Thus, as inflation rises, the yield on TIPS investments rises as well, protecting the investor’s assets from being devalued by inflation. TIPS can be purchased individually or through a mutual fund.

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Inflation: Hedging Against the Biggest Enemy of Investors.
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Inflation: Hedging Against the Biggest Enemy of Investors.
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Inflation will steadily and at a fast pace eat away all investment profits and capital an investor has unless specific steps are taken to hedge against the devaluing currency.
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