While there are many investments for inflation advertised in the media today, which ones are likely to be effective? Chances are if you are reading this then you have seen the writing on the wall. Have you already thought about investing in gold or precious metals? What about TIPS securities? Any investments for inflation are going to have strengths as well as weaknesses. Here are some things you should know about the top investments for inflation.
What Makes Gold A Popular Choice
The principal reason gold is a popular choice amongst diversified investors is its ability to act as a store of value regardless of the prevailing global currencies. Even as far back as antiquity the simple immutable yellow metal has served as an honest man's means of commerce. Paper money has always been flawed and subject to abuse by whatever government or agency that controls it. Gold has always been sought as a way to escape an abused currency (like the US dollar today) to preserve wealth until a new currency regime takes place of the diluted one.
What people do not realize is that there are fundamental weaknesses in gold as well. Namely right now there are trillions of outstanding claims on gold in financial markets today. The problem with this situation is that there is not enough gold to go around. While one might be inclined to believe this makes for a great buying opportunity what it can also mean is a sudden and infinite loop of failed trades. For this reason if you are planning on buying gold, you had better be sure to take immediate delivery - because there is absolutely no guarantee that a paper gold transaction will be honored in full (if at all).
Treasury Inflation Protected Securities (TIPS)
Another investment many people thought attractive during prior high periods of inflation was the treasury inflation protected securities. These bonds were supposed to preserve wealth from the inflationary effects of loose monetary policy, and for a time they were effective.
The problem with these bond contracts is that they were designed to be indexed to the CPI, a measure of consumer inflation. It stands to reason that these should be a good way to preserve purchasing power then, right? Unfortunately due to other entitlements (social security and medicare for example) which were tied to the CPI as well, the government chose to alter the CPI computation which effectively lowered it. The value and usefullness of TIPS securities was destroyed as a result.
Other Investments for Inflation - Can Your Earnings Be a Better Hedge
One of the best (and most often overlooked) investments for inflation is your own earning power. In years past inflation came principally as a result of wage pressures - ie people asking for raises. Try asking for a raise today however - see how close to the unemployment line that gets you. Despite the lack of wage pressure on prices somehow prices on important goods like food and energy continue to rise.
What Makes Gold A Popular Choice
The principal reason gold is a popular choice amongst diversified investors is its ability to act as a store of value regardless of the prevailing global currencies. Even as far back as antiquity the simple immutable yellow metal has served as an honest man's means of commerce. Paper money has always been flawed and subject to abuse by whatever government or agency that controls it. Gold has always been sought as a way to escape an abused currency (like the US dollar today) to preserve wealth until a new currency regime takes place of the diluted one.
What people do not realize is that there are fundamental weaknesses in gold as well. Namely right now there are trillions of outstanding claims on gold in financial markets today. The problem with this situation is that there is not enough gold to go around. While one might be inclined to believe this makes for a great buying opportunity what it can also mean is a sudden and infinite loop of failed trades. For this reason if you are planning on buying gold, you had better be sure to take immediate delivery - because there is absolutely no guarantee that a paper gold transaction will be honored in full (if at all).
Treasury Inflation Protected Securities (TIPS)
Another investment many people thought attractive during prior high periods of inflation was the treasury inflation protected securities. These bonds were supposed to preserve wealth from the inflationary effects of loose monetary policy, and for a time they were effective.
The problem with these bond contracts is that they were designed to be indexed to the CPI, a measure of consumer inflation. It stands to reason that these should be a good way to preserve purchasing power then, right? Unfortunately due to other entitlements (social security and medicare for example) which were tied to the CPI as well, the government chose to alter the CPI computation which effectively lowered it. The value and usefullness of TIPS securities was destroyed as a result.
Other Investments for Inflation - Can Your Earnings Be a Better Hedge
One of the best (and most often overlooked) investments for inflation is your own earning power. In years past inflation came principally as a result of wage pressures - ie people asking for raises. Try asking for a raise today however - see how close to the unemployment line that gets you. Despite the lack of wage pressure on prices somehow prices on important goods like food and energy continue to rise.
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