Some predict that the days of higher inflation are just around the corner and we can already see evidence of it in higher gas prices and more expensive grocery items. In this difficult economy, many people are realizing that their income is not keeping pace with the eroding value of the dollar. There are ways that we can hedge against inflation, coming out winners.
Investors need to recognize that from a long-term perspective, purchasing power is eroded by inflation. They should consider this when making investments so they will be properly invested for the long term. Investment performance should more than compensate for the inflationary effects experienced by money during our lifetime. Individuals should also regularly monitor inflation rates and capitalize on any changes.
One long-term hedge against inflation is the purchase of a home. As a fixed asset, the home increases in value over time. Those who rent out a property are also insuring themselves against inflation because rent can be increased to mirror cost of living increases. Owning a business is another insurance measure against inflation because the business owner can raise prices, fees, or rates as operation costs increase.
Those who are still of working years will find that their best defense against inflation is to maintain a job Those who are not should consider scooping up assets that will appreciate in value. Easy ways to do this are to buy gold coins, silver coins, or gold bullion. Inflation-indexed securities like I-Bonds and TIPS are other recommended investments.
If you do not take proactive measures to combat inflation, all is not lost. Keeping money in short-term accounts where rates are not locked in, locking in yield and interest rates only when comfortable, and investing in commodities are some recommended reactive measures. In the case of inflation, it is best to be prepared, rather than end up behind the inflationary eight ball.