The Best 5 Ways to Hedge Against Inflation

A common risk when holding any amount of money is inflation, which is the process of money losing its value over time. This is often seen when comparing prices from 10-20 years ago to what they are now. For example, many of the older generations often tell stories of how they bought milk back in the day for several dollars less than what it is now.

When it comes to inflation in terms of investing, there are great ways to hedge or protect the value of an investment. Certain investments linked to the inflation rate or pay specific interest rates determined by this process may provide you with additional security.

Discovering ways to hedge against inflation will depend on the risks you are willing to take in your investments. Keep reading to learn more about the five best ways to hedge against inflation.

Invest in Cryptocurrency

Investing in cryptocurrency is a great way to hedge against inflation while protecting your investments from government interference. This is especially true when investing in a cryptocurrency like Bitcoin which has a limited number of coins that will be produced. This means the government can’t devalue cryptocurrency because they can’t make more than the specified amount even if they wanted to.

Investors have jumped into this type of investment wholeheartedly despite many skeptics claiming it is merely a fad. As with any investment, there is always the risk of theft or scams. In the case of cryptocurrencies, there is the additional risk of hackers gaining access to digital wallets, causing investors to lose money.

Cryptocurrency has emerged as a viable option for investors looking to invest in something that will protect them from current and future inflation challenges. High investment returns allow investors to support technological advancements in the space as they invest.

Cryptocurrency may be a new playing field for investors, but it has shown that it is a significant investment  to aid in hedging against inflation and a place to put your money where it is untouched by government regulations.

Invest in Precious Metals

When it comes to hedging against inflation, gold and other precious metals are often considered. Investors historically have turned to gold when inflation rises or interest rates are meager.

During tough economic times, investors view gold as a form of financial security, and it has done quite well over time. Gold and other precious metals often are more secure when different interest rates plummet.

Many investors prefer to purchase their gold and other precious metals through EFT indexes rather than buying the physical product. This is because using this method keeps you from having to struggle to find safe storage for it. 

While there are many options for those who choose to invest in precious metals, it depends on the goals and objectives of the individual to decide what methods they will use. Both purchasing physical property or EFT’s can have advantages and disadvantages but can also protect against inflation that you are looking for.

Although many experts agree that investing in precious metals such as gold may not always give you the best protection against inflation, it is worth looking into. As with any other type of investment, there are always risks involved. If you are aware of these risks and understand them, you should definitely consider hedging inflation with an investment in precious metals.

Invest in Real Estate

Investing in real estate means that you are no longer a slave to rising rental costs that often occur. Owning your own home allows you to hedge against inflation due to the stability of your mortgage payments.

Additionally, investing in real estate outside of your own home can be profitable and provide you with security from inevitable inflation. Many investors have chosen to invest with REITs, or Real Estate Investment Trusts, which allows them to earn dividends on the investment of specific properties within the pool.

While there are some downsides to investing in REITs, such as paying property taxes, investment funds being rerouted to various other mediums that have a higher rate of return and the fact that when property taxes increase, this decreases the returns for all investors.

As with any other money you make in more traditional ways, dividends that you receive are also subject to taxes. This means that while you earn a profit, you are still required to pay tax on it just as if you would your other income.

Invest in TIPS

Some investors recommend that you invest your money in TIPS, or Treasury Inflation-Protected Securities, a bond issued by the government to hedge against inflation for investors specifically. As with precious metal investments, you can choose to invest in TIPS by receiving a physical bond or through EFTs.

This works very much like other bonds in that you give your money to the government in exchange for an interest in the TIPS. The payout for these bonds happens two times a year at a fixed interest rate. There are fluctuations in the bond’s principal, affecting the amount investors receive.

Investors also have the option to purchase a range of maturity plans such as five, ten, or 30-year plans. This allows investors to have some control and flexibility over their investment while at the same time protecting their money against inflation.

Invest in Stocks

Investing in stocks entails having the ability to own a piece of a specific business through either online services or stockbroker firms. This hedges against inflation because when the company has to adjust their pricing and such for the increase, this results in better returns for investors since it causes stock prices to rise.

With this type of investment, there is quite a bit of uncertainty and is dependent on the supply and demand that consumers create. When a product or service is in high demand, the stock prices typically soar; however, when the need is less, the stock prices tend to plummet.

This is why working with a professional stockbroker is typically recommended if you put your money into this type of investment. Trained professionals can tell you what to invest in, when to leave your money in, and when you should make a change.

 

At the end of the day, there are many ways to make investments that will allow you to hedge them against inflation. This will enable you to keep more money in your pocket instead of constantly paying it out to other people.