The fears of inflation have officially overthrown fears of COVID. That means this is the biggest thing everyone is worrying about. Our stocks are down, what seems like every day, and Jerome Powell’s weekly speech of reassurance no longer helps to calm us down.
Some of the biggest masters of the stock market world have been warning of this imminent threat, like Warren Buffet, Stan Druckenmiller and Michael Burry. Michael Burry is the famous investor from the movie, The Big Short, who famously predicted the collapse of the housing market.
With oil prices rapidly declining, businesses closing down and the Fed constantly pumping more money into circulation could some serious issues down the line. They are desperately trying to prevent further wreckage in the stock market and slow down at decline in our economy. But what happens after the money stops flowing? No matter when or if it happens, it’s best we prepare for what’s to come.
Keep Cash In Interest-Bearing Investments
If the stock market is going to become a massacre from inflation, it’s best to store your cash in accounts that accrue interest like money market accounts. Yes, these accounts make next to nothing from interest, but they are the place to be during rising inflation.
The rates typically fluctuate with the levels of inflation rates, so if interest rates increase, the money market rates follow. You won’t have to fear losing any market value like other fixed-rate investments.
It’s a good and safe place to keep your cash during those tough times.
Invest In Real Estate
Real estate is a great investment to counter the rise of inflation. They typically see some of their greatest price appreciation during these times. Owning real estate can provide great tax benefits that may offset typical levels of inflation.
If buying a house isn’t a possibility, there are also alternatives, like investing in REITs which are Real estate investment trusts. These are companies that owns large portfolios of income generating real estate. Another option are crowdfunding platforms like Fundrise.
Invest In Commodities
When currency begins faltering, like it typically does during inflation, it may be a smart decision to invest in some tangible assets.
Since the good ol’ days, Gold has been the go-to investment for means of currency. It has always been a store of value and remains so to this day.
But that’s not your only option. There are other precious metals you can purchase, like silver or diamonds. There is also the possibility to invest in companies that mine or transport these commodities. Companies like Freeport McMoran, which mines copper, gold and molybdenum. Or Barrick Gold Corp, a mining company that produces gold and copper in 13 countries.
Bonds
I know what you’re thinking. Investing in a fixed-income asset seems a bit counter-intuitive during periods of inflation. But there are options you can turn to, like inflation-indexed bonds, like Treasury Inflation-Protected Securities (TIPS).
When the CPI rises, so does the value of your TIPS investment. It’s a good choice to consider as inflation begins to creep in.
Crypto
Finally, I had to add this option in. Bitcoin can be seen as the perfect hedge against inflation. A decentralized asset and it’s limited supply will only drive the prices higher. They are basically the perfect hedge against the instability and volatility we would be seeing in the stock market.
Final Thoughts
Inflation is a scary thing, but not all inflation is bad. It could be a temporary result of the economy opening back up. Once those gears start warming up, our day-to-day would return to normal and inflation levels would level out. That’s just a possibility to consider.
Whatever may happen, it’s important to prepare yourself for the inevitable and have some security in your investments. I have a small percentage of bonds in my portfolio and just started investing in a few natural resource stocks. Finally, my main protection against inflation is owning cryptocurrency.
