I ask because it appears that inflation will be coming back. I have seen reports that commodity prices are way up (rubber is up 30%, copper and tin are up 10 and 15 %). Plus, the huge output of money (being supplied to fund the Obama “stimulus”) will eventually cause depreciation of the dollar.
Through history, real estate and tangible assets (god, precious coins, etc.0 have been good imflation hedges.
What would represent a good investment, to protect yourself today?
I remember the Jimmy Carter years, and the inflation in those days was terrible-if you had money in bonds or a savings account, you lost quite a bit.
What would be the best thing now-are the government “inflation protected” bonds a good option.
For about the past year in the UK, the rate of inflation has exceeded the interest rate paid by banks for savings accounts and ISAs. Options are very limited; some banks have inflation-beating interest rates for certain accounts, but there is always a catch: either there is a maximum balance over which no interest is earned (typically £2500), or else there is a lengthy withdrawal notice period (anywhere from six months to five years). The government-owned National Savings and Investments bank has accounts which are pegged above the rate of inflation, though even those accounts have catches and complications.
Gold, or if you can’t afford Gold, Silver.
Farmland with fertile soil and a good source of water.
Stay away from government issued “inflation bonds”. Official government inflation rates are always way too low and never reflect the true rate of inflation, but this is the rate you will be paid for your bonds.
Estimates of inflation are based on the amount of money that the federal reserve has pumped into the system. Plus, the fed is expected to unleash even more cash in the near future but estimates go from a few hundred billion to 2 trillion.
The point is that it doesn’t matter. The minute the fed sees banks tapping the $1 trillion they have on deposit with fed as excess reserves, that is when the fed will start pulling that cash back out via sale of assets it has on its books - and it has got a metric butt load of assets to sell.
If they are too slow to pull the trigger we could get some inflation. Actually, the fed is shooting for an inflation rate of about 2%. If they’re too quick, it could hamper the economic recovery.
Personally, my last concern right now is rampant 70’s style inflation. I don’t believe that there is much of a chance that will happen. I have a lot of my holding in bond funds and that is the last place you want to be if you think interest rates will rise. It will happen eventually, and at that point I will reallocate but it’s not something I’m worried about for at least the next 6 months to a year.
Commodities are moving with the dollar right now. Worries about the fed dumping more cash on the system are pushing the value of the dollar lower. That pushes commodity prices higher. But there is no justification for that if the economy is still sluggish so I wouldn’t expect that trend to continue unless like with gold and silver people keep piling into it out of fear.
I invested in gold and platinum several years ago but as of last year stopped my purchases because I thought the price was too high. I still believe that even though it has continued to increase. I think it is a bubble, but the problem with bubbles is they can have a very long run before they pop.
Take out a very large fixed rate mortgage at < 4%.
How could it be that someone can’t afford gold? $10,000 worth of gold costs the same as $10,000 worth of silver.
In any event, land is a better choice than precious metals, anyway, since land can increase in value. As, for that matter, can stocks and instruments derived from them.
I rolled my eyes at that one too.
In any event, right now, gold is an awful choice, because the price is at an unusually high level. Even in inflation reduces the value of money, gold might soon be declining in value. Now is not a good time to buy gold if you’re looking for safety.
Avoiding the impact of inflation is best done simply by avoiding holding money. Get your cash into things of value that aren’t money - stocks, mutual funds that don’t have a currency component, real estate. Spread it around a LOT.
Cite please.
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Gold
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Gold has held its value, and the value of an ounce of gold, i.e. what an ounce of gold can buy, has been pretty constant for the last 5000 years.
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I do agree with “spreading it around”: buy gold, silver, land, mutual funds, guns, etc.
(people have went broke holding stocks in companies that went bankrupt, land that became very cheap, paper money that became worthless, etc, but NOBODY in recorded history ever went broke by holding lots of gold)
I’m pretty sure statement #2 is simply untrue. When the Spanish started bring shiploads of gold back to the Old World, it did result in inflation. For a less extreme example from more recent history, you only have to look to the huge run up in the price of gold in the mid-80’s. On an inflation adjusted basis, if we have yet cracked the high set back then, it was only recently.
While you may not go broke, it’s worth noting that it could drop by half and still be at the same levels it was a couple of years ago - and you can’t say we’ve had much inflation in the interim.
I spent 10 minutes thinking about gold as a hedge for inflation.
I dunno what I’d do about inflation. If you’re expecting high US inflation, the International Fisher effect says that its FX rate should weaken so foreign holdings would be worth more. Buy foreign stuff now and sell it later when it’s high later. Huzzah.
Although gold has risen to high levels as a hedge against inflation, I wouldn’t buy it now, because, to me, it’s reaching its upper limits as a usable commodity for production.
If I were a speculator, I would be investing in food grains. When you start using food as fuel for machines rather than for humans, the price is going to go up if for nothing else, efficiencies sake.
If one wanted to buy a one ounce *gold *coin it would cost about $1400. If one didn’t have $1400, one could buy a one ounce silver coin one would only have to spend about $28.00.
You see some people might not have $1400, but they may have $28.00.
Sorry, I didn’t think I’d have to spell it out for you.
Is that a fact?
Today gold is trading at $1400 an ounce. Eight years ago it was trading at THREE HUNDRED an ounce. Just four years before that it peaked at $800. A decade before that it troughed at $350, just a few years after spiking up to $800.
Over the course of 5000 years, yes, it’s always fluctuated around the same midpoint. But nobody’s going to live for 5000 years; in the time frame of a person’s investment history, investing in gold is retarded. If you buy in at $1400 and your retirement coincides with gold hitting $400 and staying there for years - as in fact it has done in our lifetimes - you just threw away well over half your investment.
By comparison, the Dow Jones industrial index isn’t any more volatile than gold, and at least at a glance, is probably LESS volatile, and more likely to appreciate in the medium to long run.
There are essentially two ways to protect yourself from inflation. One is difficult and one is risky.
The difficult way is to invest your money in a manner that the amount of wealth you own increases at a faster rate than its value declines due to inflation. If inflation is 10% a year and the value of your assets are increasing at 11% a year, every year your real wealth grows by 1%.
The risky way is to invest your money in a manner that will increase it in an inverse relation to inflation. Essentially you’re betting on inflation - the higher inflation goes up the more you win. For example if you borrow money and have to pay it back with 10% interest but inflation during the period of the loan was 11%, then the total amount of money you borrowed was worth more than the total amount you paid.
Yeah, I was imagining someone buying gold in powder form in order to equal the price of a silver coin.
One-way valves.
What Is The Best Way To Protect Yourself From Inflation that may be returning soon?
If you’re concerned about high or hyper inflation, there’s only one way. Have an aggressive investment strategy that began about 30 years ago.
One of the worst things you can do in investing is getting into a game when the game is almost over. Gold prices have been climbing for some time, and many investors are thinking it’s heading into bubble territory. If the economy recovers, the price of gold could drop by more than 50% – like it did in the 1980s the last time we had a gold bubble.
Remember the old adage: Buy low/Sell High. If you want commodity investing, land would be a good bet because we just had a big asset bubble pop. Look for a good area that’ll be desirable when the economy starts to recover. I know quite a few people who went on a land buying spree back in the 1970s and early 1980s. They bought stuff on 6th and 7th Avenue, and even in less desirable areas like Greenwich Village where you could literally buy property for $1.00 a shot.
As Mark Twain once said: “Buy land, they’re not making it anymore.”, and we know what a successful investor he was!
If you really think large inflation is coming, get yourself a boatload of debt. After a period of hyper-inflation, the debt will be worthless. Of course, if the inflation doesn’t happen, you’re kind of screwed.