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Preparing to Make Inflation Investments


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Inflation Investments

What Are Inflation Investments?

Inflation investments are necessary when governments fail to control the money supply and print too much currency. As money loses value, your investment gains begin to lose meaning. For example, if inflation is going at a rate of 4% per year, you are not earning money if your investment portfolio earns 3% annually. At that rate, you are actually losing money.

To counter the effects of inflation, investors have a few options available. They need to find assets that will gain value faster than the rate of inflation. It is always possible for well-selected stocks to achieve this kind of performance. However, the higher that the inflation rate goes, the more difficult it becomes to find such candidates among stocks. Instead, many investors begin to look at alternative forms of inflation investments.

Tips for Making Inflation Investments

• Alternative Investments

If you have special knowledge about certain subjects, such as art or coin collecting, you can make intelligent investments in such things. If you have ever seen an art auction, you know that pieces of art can achieve extremely high prices. These types of inflation investments necessarily require more than average trading skills.

• Treasury Inflation-Protected Securities (TIPS)

In general, bonds are low-performing assets. However, the US government issues special bonds that are safe from significant losses to inflation. The values of TIPS are tied to the inflation rate as determined by the Consumer Price Index. The one flaw in these investments may be the increasingly unreliable description of inflation as given by this entity. Its calculations exclude critical components in daily life, such as food and fuel.

• Precious Metals

These are the classic hedges against inflation. Ever since the US government left the gold standard in 1971, precious metals have reacted to inflation by increasing their values. The gains made by gold and silver in the last decade are testaments to this power to overcome inflation.

Which defense against inflation that you choose depends on preference and your available means. Inflation investments are becoming increasingly popular now as people become concerned about the possible solutions to the coming fiscal cliff.

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