With inflation at its highest ever, taxes continually increasing, and political instability taking its toll on our country. More and more retirees are looking to take their retirement accounts out of harm’s way.
Below we detail what you can do to protect your investments from inflation and other relevant market risks.
Alternative Investments
Investing in alternative investments to hedge against inflation is a common choice for individuals looking to protect their portfolios from inflation. These assets provide a variety of advantages, including higher returns, lower volatility, and less sensitivity to market trends. But they come with a few drawbacks as well.
Alternative investments are typically illiquid, meaning they are harder to trade and sell at a fair price. They may also be a less profitable investment in an inflated economy.
One of the most popular alternative investments is real estate. It provides both cash distributions and property appreciation.
Another popular investment is commodities. These include livestock, agricultural products, raw materials, and similar raw materials.
Commodities are usually not considered income producing, but they can be a good way to hedge against inflation. They can potentially ride out downturns, and they offer a differentiated source of alpha.
Another popular alternative asset is infrastructure. These investments are usually low-volatility and often have minimal correlation to other asset classes.
Gold and Silver
Investing in gold and silver is an excellent way to hedge against inflation. These metals are physically rare and they provide great protection against currency weakness, political instability and economic collapse explained thoroughly at this url. However, they can also be volatile. Choosing the right asset can be tricky.
The best investment for a particular situation is dependent on your own goals. It may be better to diversify your portfolio into several different asset classes. You can also use an investment in shares as a hedging strategy.
Another alternative is to invest in a precious metal royalty company. These companies are young and have a large share of potential future streams. These are riskier than their more mature counterparts. But, they are a great way to diversify your portfolio.
If you are going to hedge against inflation, it is important to choose an asset with a long track record. Silver is a good example of an asset that has done well. The price of silver has risen significantly over the past hundred years.
Commodities
Historically, commodities have proven to be solid inflation hedges. However, there are some important things to keep in mind when investing in them.
Inflation can outpace household income and Social Security cost-of-living adjustments. This can leave many investors wondering how to protect themselves from further declines in buying power.
A common approach for commodities exposure is through derivatives. These are investment products that offer the ability to short or long the price of a particular commodity, without actually owning it. They require a brokerage account and a stockbroker.
Generally, the best way to hedge against inflation is through an increased allocation to commodities. Whether you use an exchange-traded product (ETP) or an actual commodity, the goal is to have a well-diversified portfolio with low correlation to the stock market.
During periods of high inflation, commodities tend to perform better than equities. There are several reasons for this. For example, industrial metals, such as copper, typically show a good price appreciation. They also benefit from supply and demand dynamics. The supply and demand of these products is influenced by factors such as weather patterns and agricultural practices.
Real Estate
Buying real estate can be an excellent way to hedge against inflation. However, there are different ways to do this. The best way is to buy a property before inflation takes hold of the economy.
A multifamily apartment community can be a good investment during inflationary periods. The rents of these properties will generally rise by 2% to 3% each year. This will help offset the natural increase in inflation, which typically occurs at a rate of 2% to 3%.
In addition to being a good way to hedge against inflation, real estate can also be a solid investment for long-term owners. These properties offer stable incomes that allow investors to ride out economic cycles.
In addition to providing stable income, real estate has historically increased in value in inflationary environments. In addition to increasing the total value of the property, higher rents will also improve the amount of money the owner can keep.
Investing in a real estate equity fund can provide an inflation hedge. The returns of a private real estate equity fund can be tax-free.
