Today I would like to mention a few traditional (and one ‘newer’) inflation hedges. This is not financial advice, just some food for thought for those of you that have been following the recent video and blog posts regarding financial education.
Remember, inflation refers to rising prices on goods and services across an economy over a period of time. Inflation lowers the value of your cash (and cash savings) and also your fixed-income investments.
Below are some traditional and maybe not so traditional investment hedges…
Some traditional (and newer) hedges:
Gold has often been considered ‘the main’ hedge against inflation. Many people have traditionally looked to gold as an “alternative currency,”
In general, returns on stocks beat inflation. Rising prices can mean more profit for companies, which then raises their share prices.
Bonds on average offer lower returns than stocks, but they can also regularly beat inflation
Commodities are raw materials used to create the products consumers buy and include grain, precious metals, electricity, oil, beef, orange juice, and natural gas, foreign currencies, emissions, and certain other financial instruments. Commodity prices usually rise when inflation is accelerating (as prices increase).
5. Real Estate Investment Trusts (REITs) / Real Estate Income
Real estate investment trusts (REITs) are companies that own and operate income-producing real estate. Property prices and rental income tend to rise when inflation rises.
Real estate income is income earned from renting out a property. Real estate works well with inflation. As inflation rises, so do property values, and so, theoretically, does the amount a landlord can charge for rent.
6. Alternative investments
‘Different’ forms of tangible assets, such as fine art, vintage cars, whisky and other collectibles, also tend to work well as a hedge against inflation.
Unlike the pound or the US dollar, for example, bitcoin can’t be devalued by a government or a central bank distributing too much of them. Bitcoin is not controlled by any centralised authority and its supply is limited. There can only ever be 21m in existence.
If there is any interest we could delve a bit deeper into these hedges in the future …let me know?
Good luck for the rest of the week!