# What Is The Best Way To Protect Yourself From Inflation? **URL:** \ **Category:** Factual Questions\ **Created:** [October 29, 2010, 10:29pm UTC](https://boards.straightdope.com/t/what-is-the-best-way-to-protect-yourself-from-inflation/558826 "2010-10-29T22:29:59Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![Little\_Nemo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/little_nemo/32/3120_2.png) [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)\ **Post date:** [October 31, 2010, 4:05pm UTC](https://boards.straightdope.com/t/what-is-the-best-way-to-protect-yourself-from-inflation/558826/21 "2010-10-31T16:05:22Z")
> [@Mangosteen](#): > > 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. If you’ve only got twenty eight dollars to spend, you best investment strategy is to buy some cheap non-perishable food not on an ounce of silver that may be worth thirty five dollars in six months. You need to have at least a couple of thousand dollars set aside before you start thinking about a long term investment strategy. ---
**Author:** ![dzero](https://avatars.discourse-cdn.com/v4/letter/d/5f9b8f/32.png) [@dzero](https://boards.straightdope.com/u/dzero)\ **Post date:** [October 31, 2010, 5:22pm UTC](https://boards.straightdope.com/t/what-is-the-best-way-to-protect-yourself-from-inflation/558826/22 "2010-10-31T17:22:14Z")
For people interested in real estate - and I’m neither endorsing nor rejecting the idea - there are several ETF’s (exchange traded funds) that deal mainly with the real estate sector. The problem is that like most ETF’s, the price of the stock won’t exactly track the underlying sector for a variety of reasons. I’ve even seen an ETF go one way and the underlying the opposite way (not common though). Another option is a REIT (Real Estate Investment Trust). These are a little trickier and if you have never dealt with one, there are many rules specific to REIT’s that it would be wise to understand. Here is a list of RE sector oriented ETF’s I could find at my brokers web site: **REZ** —iShares FTSE NAREIT Resid Plus Cp Idx **REM** \*\*—**iShares FTSE NAREIT Mort Plus Cp Idx FRI **—** First Trust S&P REIT Idx FTY **—** iShares FTSE NAREIT Real Estate 50 IYR **—** iShares Dow Jones US Real Estate VNQ **—** Vanguard REIT Index ETF ICF **—** iShares Cohen & Steers Realty Majors RWR **—** SPDR Dow Jones REIT FIO **—** iShares FTSE NAREIT Industrl/Offc Cp Idx RTL **—** iShares FTSE NAREIT Retail Cp Idx URE **—** ProShares Ultra Real Estate DRN **—** Direxion Daily Real Estate Bull 3X Shrs IFNA **—** iShares FTSE EPRA/NAREIT North America PSR**—\*\*PowerShares Active U.S. Real Estate \*\*WREI—\*\*Wilshire US REIT ETF BTW, there are also futures ETF’s like Radar Logic’s RPX, but I know even less about how those work. ---
**Author:** ![Mangosteen](https://avatars.discourse-cdn.com/v4/letter/m/6a8cbe/32.png) [@Mangosteen](https://boards.straightdope.com/u/Mangosteen)\ **Post date:** [October 31, 2010, 5:23pm UTC](https://boards.straightdope.com/t/what-is-the-best-way-to-protect-yourself-from-inflation/558826/23 "2010-10-31T17:23:17Z")
> [@amarone](#): > > Cite please. > **[financialsensearchive.com](http://www.financialsensearchive.com/stormwatch/2005/0624.html)** I know that since this is not an official government source, you’ll think its all bullshit. I that is your right. ---
**Author:** ![Rysto](https://avatars.discourse-cdn.com/v4/letter/r/ecccb3/32.png) [@Rysto](https://boards.straightdope.com/u/Rysto)\ **Post date:** [October 31, 2010, 7:07pm UTC](https://boards.straightdope.com/t/what-is-the-best-way-to-protect-yourself-from-inflation/558826/24 "2010-10-31T19:07:40Z")
US Treasury Inflation-Protected Securities(TIPS) use the U.S. City Average All Items Consumer Price Index for All Urban Consumers (CPI-U) to measure inflation([cite](http://www.treasurydirect.gov/instit/statreg/auctreg/auctreg_gsrlist.htm)). CPI-U includes food and energy([cite](http://www.bls.gov/cpi/cpifaq.htm#Question_13)). The reason that the “core inflation” is typically reported in the media is that food and energy prices are quite volatile and prone to being affected by non-monetary phenomena. When the Federal Reserve is making policy decisions they tend to use core inflation as their indicator as they’re only interested in monetary policy, so the media tends to report on that. ---
**Author:** ![Susanann](https://avatars.discourse-cdn.com/v4/letter/s/7ab992/32.png) [@Susanann](https://boards.straightdope.com/u/Susanann)\ **Post date:** [October 31, 2010, 7:59pm UTC](https://boards.straightdope.com/t/what-is-the-best-way-to-protect-yourself-from-inflation/558826/25 "2010-10-31T19:59:45Z")
> [@RickJay](#): > > 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. > > 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. So…you want to use “peak” values for comparison, do you? OK. The Dow Jones “peaked” out in 1929, and it STILL has not come back yet. 90 years… and counting it is STill worth less than it was then, and 90 years is a VERY long time to wait, most people didnt live long enough to break even. In **1929** the Dow peaked out at **19 ounces of gold** (Dow 381/$20 an ounce of gold). Today, in 2010, the Dow has still not come back to its 1929 peak value, and the Dow in **2010** is now currently worth only **8 ounces of gold** (Dow11118/$1360 an ounce of gold) which is less than half of what it was worth 80 years ago. ---
**Author:** ![Susanann](https://avatars.discourse-cdn.com/v4/letter/s/7ab992/32.png) [@Susanann](https://boards.straightdope.com/u/Susanann)\ **Post date:** [October 31, 2010, 8:06pm UTC](https://boards.straightdope.com/t/what-is-the-best-way-to-protect-yourself-from-inflation/558826/26 "2010-10-31T20:06:21Z")
> [@Clark\_Cello](#): > > 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. Maybe , maybe not. My guess is…not. The government could pass a law which would “revalue” certain debts, for example, mortgages, student debt, bank credit card debt, and car loans. The government could mandate that all debts in these 4 categories will be “adjusted” into the new currency, os as the consumer will still owe the same amount as he had before in the “old” dollars. “Readjusting” certain debts would be the only way to save our banking system. If you try to outsmart the government by taking out a lot of mortgages and credit card debt, you will find yourself in bankruptcy after you find out that the government is going to “protect” bank debt . ---
**Author:** ![Susanann](https://avatars.discourse-cdn.com/v4/letter/s/7ab992/32.png) [@Susanann](https://boards.straightdope.com/u/Susanann)\ **Post date:** [October 31, 2010, 8:09pm UTC](https://boards.straightdope.com/t/what-is-the-best-way-to-protect-yourself-from-inflation/558826/27 "2010-10-31T20:09:55Z")
> [@dzero](#): > > 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. . \*\*Gold \*\*maintained its value throughout the rise and fall of the Spanish empire, and thereafter. It was the price of\*\* silver\*\* that nosedived after the Spanish brought back shiploads of silver. Silver has been in a 500 year decline. ---
**Author:** ![Susanann](https://avatars.discourse-cdn.com/v4/letter/s/7ab992/32.png) [@Susanann](https://boards.straightdope.com/u/Susanann)\ **Post date:** [October 31, 2010, 8:21pm UTC](https://boards.straightdope.com/t/what-is-the-best-way-to-protect-yourself-from-inflation/558826/28 "2010-10-31T20:21:04Z")
Originally Posted by Susanann 2. 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. > [@dzero](#): > > I’m pretty sure statement #2 is simply untrue. In America, we know that 1 ounce of gold 100 years ago, could buy someone either a good rifle, or a good suit of clothes. Ditto for 200 years ago, 1 ounce of gold in 1810 would still buy a nice rifle or 1 ounce of gold would buy a good suit of clothes. We also know that back in the 1920’s, 30 ounces of gold ($600.00) would buy an automobile or a nice building lot in a good city. Today, in 2010, those same 30 ounces of gold ($41,000.00 current dollars) will still be enough to buy a car or a city residential lot today. The same comparisons can be made going back hundreds or thousands of years, although people back then bought weird things not commonly in use today. The point remains, that a “bucket full of gold” today, yesterday, 100 yearss ago, or even 2000 years ago gave you a good deal of wealth, at any time, in any country of the world. ---
**Author:** ![amarone](https://avatars.discourse-cdn.com/v4/letter/a/e0b2c6/32.png) [@amarone](https://boards.straightdope.com/u/amarone)\ **Post date:** [October 31, 2010, 9:20pm UTC](https://boards.straightdope.com/t/what-is-the-best-way-to-protect-yourself-from-inflation/558826/29 "2010-10-31T21:20:11Z")
Gold has already increased in value well above inflation over the last few years and arguably is in a bubble. [This chart](http://inflationdata.com/inflation/images/charts/Gold/Gold_inflation_chart.htm) shows that gold is well above historical prices since 1914 except for a period around 1980. Over this nearly 100 year period, the average price of gold in today’s dollars was $672/ounce. The current price is $1,357 - twice the historical norm. If you still like gold as an inflation hedge, also bear in mind that it is taxed as a collectible, i.e. 28% capital gains tax versus 15% for normal stocks/bonds/property. Hence gold would have to be a better inflation hedge than these other investments just to give the same net result. ---
**Author:** ![FuzzyOgre](https://avatars.discourse-cdn.com/v4/letter/f/a587f6/32.png) [@FuzzyOgre](https://boards.straightdope.com/u/FuzzyOgre)\ **Post date:** [October 31, 2010, 9:35pm UTC](https://boards.straightdope.com/t/what-is-the-best-way-to-protect-yourself-from-inflation/558826/30 "2010-10-31T21:35:04Z")
> [@Susanann](#): > > Originally Posted by Susanann > 2. 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. > > In America, we know that 1 ounce of gold 100 years ago, could buy someone either a good rifle, or a good suit of clothes. Ditto for 200 years ago, 1 ounce of gold in 1810 would still buy a nice rifle or 1 ounce of gold would buy a good suit of clothes. > > We also know that back in the 1920’s, 30 ounces of gold ($600.00) would buy an automobile or a nice building lot in a good city. Today, in 2010, those same 30 ounces of gold ($41,000.00 current dollars) will still be enough to buy a car or a city residential lot today. > > The same comparisons can be made going back hundreds or thousands of years, although people back then bought weird things not commonly in use today. The point remains, that a “bucket full of gold” today, yesterday, 100 yearss ago, or even 2000 years ago gave you a good deal of wealth, at any time, in any country of the world. Sorry you are wrong. When I was born in '72 the price of gold was at 35 an ounce or so. 30 oz of that gold was a thousand bucks, only 1/2 to 1/3 the price of a car. A few years later it was over 1000/oz. ---
**Author:** ![Little\_Nemo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/little_nemo/32/3120_2.png) [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)\ **Post date:** [October 31, 2010, 9:45pm UTC](https://boards.straightdope.com/t/what-is-the-best-way-to-protect-yourself-from-inflation/558826/31 "2010-10-31T21:45:50Z")
The problem with buying gold is that it’s a pretty static commodity. Go out and buy an ounce of gold and wait ten years. What you’ve got is still the same ounce of gold you bought ten years ago. Go out and buy a hundred shares in a corporation and wait ten years. Your shares may become worthless. Or the corporation may create some valuable new technology or business method and your shares may be worth a lot more than they were when you bought them. The bottom line is that the only way you can have real long-term growth is by investing in people who are creating new wealth. You’re betting on progress. ---
**Author:** ![Chronos](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/chronos/32/134_2.png) [@Chronos](https://boards.straightdope.com/u/Chronos)\ **Post date:** [October 31, 2010, 10:01pm UTC](https://boards.straightdope.com/t/what-is-the-best-way-to-protect-yourself-from-inflation/558826/32 "2010-10-31T22:01:18Z")
> [@](#): > > In 1929 the Dow peaked out at 19 ounces of gold (Dow 381/$20 an ounce of gold). Today, in 2010, the Dow has still not come back to its 1929 peak value, and the Dow in 2010 is now currently worth only 8 ounces of gold (Dow11118/$1360 an ounce > of gold) which is less than half of what it was worth 80 years ago. So you’re proving that gold is the most stable commodity by using gold as your standard. Well, heck, by that argument, I could prove that _anything_ is stable! The US dollar was worth $1 in 1929, and it’s worth $1 now! You can’t beat that stability. The reason why the Dow is worth less ounces of gold now than it was in 1929 isn’t because the Dow hasn’t gone up: In fact it has, significantly. It’s only worth less gold now than it used to be because the price of gold is tremendously unstable. You’re arguing exactly the opposite of what you claim. You’d be much better off using, say, [Big Macs](http://en.wikipedia.org/wiki/Big_Mac_Index) as the standard for comparison. Unlike gold, a Big Mac has real inherent value, not just fiat value. ---
**Author:** ![Quintas](https://avatars.discourse-cdn.com/v4/letter/q/48db29/32.png) [@Quintas](https://boards.straightdope.com/u/Quintas)\ **Post date:** [October 31, 2010, 10:07pm UTC](https://boards.straightdope.com/t/what-is-the-best-way-to-protect-yourself-from-inflation/558826/33 "2010-10-31T22:07:17Z")
> [@RickJay](#): > > 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. it reminds me of those silly Buy Gold commercials that say “Gold has never been worth ZERO”. ---
**Author:** ![Martin\_Hyde](https://avatars.discourse-cdn.com/v4/letter/m/47e85d/32.png) [@Martin\_Hyde](https://boards.straightdope.com/u/Martin_Hyde)\ **Post date:** [October 31, 2010, 10:31pm UTC](https://boards.straightdope.com/t/what-is-the-best-way-to-protect-yourself-from-inflation/558826/34 "2010-10-31T22:31:26Z")
> [@RickJay](#): > > 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. Since I actually have lived for over 5000 years roughly 500 years ago or so, when owning property became a bit more stable I bought up a bunch of land that contains long forgotten and massive gold mines. I’m just waiting for the right moment to capitalize on this. ---
**Author:** ![Hari\_Seldon](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/hari_seldon/32/5173_2.png) [@Hari\_Seldon](https://boards.straightdope.com/u/Hari_Seldon)\ **Post date:** [October 31, 2010, 10:40pm UTC](https://boards.straightdope.com/t/what-is-the-best-way-to-protect-yourself-from-inflation/558826/35 "2010-10-31T22:40:35Z")
That $35 an ounce in 1972 was an artificial price and it was not for sale (legally) to any US citizen. At $1300 or so, I wouldn’t touch it. Right now, at least one economist (Krugman) thinks that deflation, as happened in Japan in the 90s is at least a possibility. I think of inflation as like entropy. First law, you can’t win. Second law, you can’t even break even (because you would lose your “profits” to taxes). Third law, you can’t even get out of the game. ---
**Author:** ![Ludovic](https://avatars.discourse-cdn.com/v4/letter/l/7ab992/32.png) [@Ludovic](https://boards.straightdope.com/u/Ludovic)\ **Post date:** [October 31, 2010, 10:49pm UTC](https://boards.straightdope.com/t/what-is-the-best-way-to-protect-yourself-from-inflation/558826/36 "2010-10-31T22:49:50Z")
> [@](#): > > In 1929 the Dow peaked out at 19 ounces of gold (Dow 381/$20 an ounce of gold). Today, in 2010, the Dow has still not come back to its 1929 peak value, and the Dow in 2010 is now currently worth only 8 ounces of gold (Dow11118/$1360 an ounce > of gold) which is less than half of what it was worth 80 years ago. This is cherry-picking much like that used by climate change deniers. This calculation picks both a high start point for stocks (from which it can plummet) and selects a high end point for gold (which makes it look better in comparison.) There were lots of people in the mid 2000’s saying you should put all your money into real estate and could show charts that say it always returns way more than a similar calculation would return now, and a similar phenomenon happened with stocks a couple years prior to that saying that you’d always return more than 10% with stocks. Who knows when the same will happen to gold, but if I had several thousand dollars extra kicking around, I’d invest in long-range put options for gold, since I think it will drop severely in the next few years. But the chances I have calculated for that do not outweigh the tax advantages of maximizing my 401k and IRA so I am doing that instead. ---
**Author:** ![Martin\_Hyde](https://avatars.discourse-cdn.com/v4/letter/m/47e85d/32.png) [@Martin\_Hyde](https://boards.straightdope.com/u/Martin_Hyde)\ **Post date:** [October 31, 2010, 10:59pm UTC](https://boards.straightdope.com/t/what-is-the-best-way-to-protect-yourself-from-inflation/558826/37 "2010-10-31T22:59:22Z")
It’s very unwise to act as though gold is the ultimate safe investment. **RickJay** ’s point is extremely valid, over 5000 years gold is a safe investment but that’s irrelevant to real human beings. Let’s pose a fictional scenario. It is the year 1980, I’m 40 years old and my mother has just died leaving me about $400,000 free and clear. I decide to squirrel that money away and use it later in life to retire a bit early. Let’s also assume I don’t really understand markets very much at all, and that I’ve been casually observing the ever-increasing price of gold over the past five years. In 1975 gold was trading for around $160/oz. In 1980 it was trading for around $620 an ounce (I think it peaks around 650 an ounce in 1980), I think to myself how much I’d be sitting on right now if I had bought gold just five years before at $160/oz. Well, now I am sitting on a lot of cash and I want in on this gold thing, so I buy $400,000 in gold at $620/oz. That’s roughly 645 ounces of gold, after making my purchase I go on my merry way and live my life as normal for the next 20 years. The year 2000 rolls around and I’m 60 years old, I decide it’s time to retire and I need to evaluate my financial situation. I remember that I had $400,000 worth of gold in 1980. I hadn’t closely followed the gold market since then, but I’m licking my lips, sure I must be a gold millionaire. When I go to check the value of my 645 ounces of gold, I break down into tears when I find out gold is trading at $279/oz. My $400,000 has now been halved, and I only have $180,000. I cry because I think of all the things I could have bought with that $400,000 instead. Even U.S. savings bonds would leave me with more than I had put in, over a 20 year span, and they are a generally safe investment. Obviously such an investment in gold would be foolish. (Some might argue that maybe it wouldn’t if I held onto it for a few more years when gold exploded, then I’d be rich, but remember in this scenario it is now the year 2000 and I’m 60 years old and wanting to retire early. Whatever happens after that, I’m missing out on years of retirement, no amount of later gains can give those years back.) Of course, we could now say, “well gold isn’t necessarily an investment but a hedge against the varying price of a paper currency, while the dollar value of your gold is halved, maybe the dollar goes further now, so you haven’t really lost anything.” Well, that was obviously not true. We had inflation from 1980-2000, things cost more in dollars in 2000 than they did in 1980. Gas was more expensive per gallon in 2000 than it was in 1980, Big Macs were something like 2x as expensive in 2000 than they were in 1980 (estimated price in 1980 is around $1.00 and probably around $2.50-3.00 in 2000, if not a little more.) Gold _can_ serve as a hedge against inflation, but in the lifespan of real investors the ups and downs _can_ destroy you if you’re overexposed to it, just like anything else. Most investment professional advise some exposure to gold but not more than 5-10% of your portfolio, and for good reason. ---
**Author:** ![Susanann](https://avatars.discourse-cdn.com/v4/letter/s/7ab992/32.png) [@Susanann](https://boards.straightdope.com/u/Susanann)\ **Post date:** [October 31, 2010, 11:10pm UTC](https://boards.straightdope.com/t/what-is-the-best-way-to-protect-yourself-from-inflation/558826/38 "2010-10-31T23:10:05Z")
> [@Little\_Nemo](#): > > Go out and buy a hundred shares in a corporation and wait ten years. Your shares may become worthless. > > The bottom line is that the only way you can have real long-term growth is by investing in people who are creating new wealth. Long term? In the long term, stock almost inevitably will become worthless. In the long term, nearly all companies go out of business and their stock becomes worthless. How many companies from 100 years ago are still around? How much stock in how many other companies that came and went during the past 100 years are still around? Do you have any idea how many car makers, how many car parts suppliers, how many computer companies, how many television and radio manufacturers, how many textile factories have went out of business in the 20th century? How many companies from 200 years ago are still around? The only thing worse than owning stock, is possessing **paper** fiat currency issued by a bankrupt country that is continually adding trillions to its debt. ---
**Author:** ![Susanann](https://avatars.discourse-cdn.com/v4/letter/s/7ab992/32.png) [@Susanann](https://boards.straightdope.com/u/Susanann)\ **Post date:** [October 31, 2010, 11:19pm UTC](https://boards.straightdope.com/t/what-is-the-best-way-to-protect-yourself-from-inflation/558826/39 "2010-10-31T23:19:11Z")
> [@Chronos](#): > > The US dollar was worth $1 in 1929, and it’s worth $1 now! You can’t beat that stability. No. A “1929 dollar” could buy a lot more than a dollar can buy today in 2010. On the other hand, an ounce of gold from 1929, has the same purchasing power today as it did back in 1929. ---
**Author:** ![Susanann](https://avatars.discourse-cdn.com/v4/letter/s/7ab992/32.png) [@Susanann](https://boards.straightdope.com/u/Susanann)\ **Post date:** [October 31, 2010, 11:22pm UTC](https://boards.straightdope.com/t/what-is-the-best-way-to-protect-yourself-from-inflation/558826/40 "2010-10-31T23:22:23Z")
> [@Martin\_Hyde](#): > > It is the year 1980, I’m 40 years old and my mother has just died leaving me about $400,000 free and clear. I decide to squirrel that money away and use it later in life to retire a bit early. If you want to cherry pick peak years, then change your story to your mother dying in 1929 and you put everything into the stock market in the summer of 1929. [Previous page](https://boards.straightdope.com/t/what-is-the-best-way-to-protect-yourself-from-inflation/558826.md?page=1) [Next page](https://boards.straightdope.com/t/what-is-the-best-way-to-protect-yourself-from-inflation/558826.md?page=3)