Hedging Against Inflation
With the recent increase in energy prices there is increased talk about inflation. What options are available for ordinary investors to hedge against inflation?
The best option to hedge against inflation is to stay employed - the salary is likely eventually keep pace with inflation. There is a contrary opinion though - if cheap labor (skilled/unskilled) is plentiful and easily available it is likely that the salary increase in the U.S wont keep pace with inflation and living standards will decline.
Besides this, there are several other options.
One can buy gold, no, it is not required to stow away the yellow metal in the locker or basement anymore. The gold ETF which trades by the moniker GLD is a good alternative with a low expense ratio of 0.4%. Gold has been up about 7% for the year easily outpacing both inflation and S&P 500 index.
Then there is real estate. Typically real estate is a even better hedge against inflation than gold. Since inhabitable real estate on earth is limited and cant be produced like gold, this is a better hedge. However, given the current sky high prices on land and housing properties - it may not be a good bet. One has to pay property taxes and then maintain the property ( land or house ). Land doesnt require insurance but house will need insurance.
The U.S government offers I bonds for individual investors which provide an interest rate of inflation + 1%. The interest rate for the next six months is 6.73%. The interest compounds monthly and can be held till maturity. The maturity period is thirty years. I bonds can be bought from the treasury directly ( http://www.savingsbonds.gov/indiv/indiv.htm ) or through some local banks that offer them.
Finally there is the stock market which has historically done better than inflation in recorded history. Given the many risks that exist in today's market to unanticipated natural and man made events - it makes sense to diversify into different asset classes.
With the recent increase in energy prices there is increased talk about inflation. What options are available for ordinary investors to hedge against inflation?
The best option to hedge against inflation is to stay employed - the salary is likely eventually keep pace with inflation. There is a contrary opinion though - if cheap labor (skilled/unskilled) is plentiful and easily available it is likely that the salary increase in the U.S wont keep pace with inflation and living standards will decline.
Besides this, there are several other options.
One can buy gold, no, it is not required to stow away the yellow metal in the locker or basement anymore. The gold ETF which trades by the moniker GLD is a good alternative with a low expense ratio of 0.4%. Gold has been up about 7% for the year easily outpacing both inflation and S&P 500 index.
Then there is real estate. Typically real estate is a even better hedge against inflation than gold. Since inhabitable real estate on earth is limited and cant be produced like gold, this is a better hedge. However, given the current sky high prices on land and housing properties - it may not be a good bet. One has to pay property taxes and then maintain the property ( land or house ). Land doesnt require insurance but house will need insurance.
The U.S government offers I bonds for individual investors which provide an interest rate of inflation + 1%. The interest rate for the next six months is 6.73%. The interest compounds monthly and can be held till maturity. The maturity period is thirty years. I bonds can be bought from the treasury directly ( http://www.savingsbonds.gov/indiv/indiv.htm ) or through some local banks that offer them.
Finally there is the stock market which has historically done better than inflation in recorded history. Given the many risks that exist in today's market to unanticipated natural and man made events - it makes sense to diversify into different asset classes.
posted by stocktrader07 at 8:19 PM
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