As covered in our last post, "Inflation Is Here!", after staying hidden for nearly two decades, inflation is rearing its head. This means cash is no longer king. When inflation trends above average, your dollars become devalued as you need more to buy the same thing. It's time to be strategic with your hard-earned dollars and make sure your money is working for you.
Did you know that some investment types are better than others when it comes to beating inflation?
Read on for 5 investment types that historically do better than cash during inflationary times.
1 - Stocks
In 1921 a dozen eggs cost 50.9¢, while in 2021, a dozen cost $1.64. That is a 322% increase in price, talk about scrambling for more money!
However, had you invested 50.9¢ in the S&P500 at the time, it would be worth $12,644.48 today. You can't say the same thing about the family heirloom 100-year-old eggs; yuck!
Investing in stocks is one of the easiest ways to outpace inflation. While performing variably year to year, stocks have historically risen on average and outpaced inflation to become one of the greatest wealth-generating instruments in human history.
2 - Gold
From jewelry to ingots, gold has long been a store of value that has provided stability and inflation protection for many millennia. Few other investments can boast such a shiny track record. However, with the rise of modern society, does gold still have a place?
The short answer is yes, but only over long periods. In the short term, gold markets are rampant with speculation and a myriad of influences. Still, if you have a time horizon of several decades, gold has had a minimal correlation with inflation over the past century.
Thus, if you do not need the money for the foreseeable future, gold is a way to preserve value and hedge inflation. Just don't bet on it during time spans less than a decade.
3 - Real Estate
"The best investment on Earth is Earth," a real estate magnate once said. While we could debate the merits of what the best investment truly is, real estate should be on everyone's top five list.
Whether through physical land or REITs, real estate ownership has historically kept up with inflation or even beat it over time. So, if you already own a well-diversified portfolio, consider adding exposure to Earth!
4 - Collectibles
Are you an art or classic car buff? Then consider investing in collectibles! Collectibles can span everything from art to cars and comic books to stamps. While some collectibles, such as beany babies, can be overhyped and prone to crashing, others have historically outpaced inflation.
If you are interested in collectible investments as a hedge to inflation, research your passions to see if they align with well-performing collectible categories. If so, venture at your own risk, as this category can undoubtedly be volatile!
5 - TIPS
A list of inflation-beating investments would not be complete without TIPS, also known as Treasury Inflation-Protected Securities. Heck, inflation-protected is in the name!
The United States Government issues TIPS to raise money through debt, and they are indexed to keep up with inflation - and deflation. Thus, TIPS has minimal risk to inflation and default, making them perhaps the safest investment on any list!
Summary
So while inflation is here and above average, you can protect your ability to maintain your purchasing power. By diversifying your portfolio and hedging against inflation through investing, you have a higher chance of coming out ahead!
If you are looking to review your circumstances, give us a call or send us an email, we would be happy to set up an appointment to review your goals to make sure you are prepared.