The 6 Best Assets to Protect Your Money Against Inflation
While talks regarding upcoming interest rate hikes are more and more frequent, inflation in Europe continues to run high.
In this article, we’re taking a look at different inflation hedges that can help you protect your money.
If you want to know more about inflation, check out this article.
Gold is a historic inflation hedge, but that hasn’t always been the case.
Back when the USD was backed by gold, it was forbidden for US citizens to own gold. The restrictions were lifted in 1975 after Nixon unpegged the USD from gold.
The outcome for gold as an inflation hedge was natural. If the volume of dollars had to equal the volume of gold at all time, it was only logical that more dollars for the same amount of gold would increase the value of gold.
Eg: if you have $100 and 100 grams of gold, then $1 = 1 gram. If the government prints $100 without mining more gold, then we’ll have $200 = 100 grams of gold -> 1 gram = $2.
If the government did not print any money, the price of gold would decrease in the long term as more gold would be mined comparatively to the amount of money.
Unfortunately, the government is constantly printing a lot of money.
So, gold, naturally, goes up.
Wait a minute…
Gold hasn’t been increasing with inflation. While certain commodities doubled (oil, gas, for example), gold has in fact been decreasing these past few months.
Some say cryptocurrencies and particularly bitcoin have replaced gold.
But looking at the performances of Bitcoin since the beginning of the year (-80%), it’s unlikely.
It could be too that gold is being left out because investors know that this period isn’t just inflation. It’s also about a recession.
#2 Certain Stocks
There are some companies that will sell regardless of the economic conditions: supermarkets, consumer goods companies, mining activities, and logistics companies.
Since these businesses provide services and goods that are consumed regardless of their price, they’re reasonably inflation-proof.
#3 Real Estate
I could have included real estate in the section above, but real estate is much, much more than just “stocks”.
There are 1001 ways to invest in real estate and 1001 types of real estate.
That being said, not all real estate is good to invest in.
Consumer real estate for example (houses and apartments) may follow inflation and increase in prices…until the bubble bursts.
Commercial real estate like data centers, warehouses, or offices are more stable and safe.
Real estate can be purchased directly, through REITs, or through loans.
Commodities are oil, gas, coal, soya, wheat, copper, iron, silver, etc.
Commodities don’t only increase in prices along with inflation — they often cause inflation.
One of the main reasons for inflation at the moment isn’t as much money printing by central banks as it is a lack of energy and demand higher than supply.
The war in Ukraine, the lack of investment in oil and gas infrastructures, the lack of human resources, and an increase in demand have tightened energy supply — hence the increase in price.
#5 Inflation-Linked Bonds
Inflation-linked bonds are bonds whose interest rates move up and down with inflation.
These bonds are great when inflation increases, but not so much when interest rates are low and inflation does not move up — or worse, moves down.
As a result, inflation-linked bonds should be purchased before inflation hits, not after, as inflation will go down (hopefully) and so will their return.
Farmland is the last asset you can invest in to protect your money from inflation.
If you’re a regular reader of LandEx’s blog, you know that the price of farmland is derived from the price of its output and from the supply and demand.
When inflation rises, so does the price of food hence so does the price of farmland.
Inflation is one of the most destructive effects on the economy and it often leads to social destabilization, if not revolutions.
This is why central banks and governments must do all they can to tame it.
Inflation is caused by overconsumption and underproduction. As a result, less consumption (or more production) is the only viable solution.
Unfortunately, governments often choose the easiest road — less consumption. So they raise interest rates.
When they do, the volume of money in the economy decreases and there is a recession.
Next week, we’ll have a look at the best assets to invest in to protect your money during a recession.
Invest in farmland with landex.ai today.
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