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Inflation is the general increase in the price of goods and services and a decline in the value of a nation’s currency. Although there are broader implications of inflation on the country’s economy, it can also have a significant impact on the performance of an investment portfolio. Given that fact, it is crucial for investors to be aware of inflation-proof investments to hedge against inflation risk. Investors can keep abreast of the rate of inflation with an inflation calculator. In this article, financial experts discuss 7 investments to consider as an inflation hedge in 2020.
The Single Best Hedge Against Inflation Would Be Gold Royalty And Streaming Companies
“Hard assets generally make the best inflation hedges. Investments like gold, silver, and real estate can hold up very well in inflationary environments.
Commodity producers can also perform very well, but may face temporary headwinds if there is a recession in the United States. I am bullish for the long run on oil stocks and copper stocks, especially those with low production costs, but investors must be prepared to accept volatility in those industries.
In my view, the single best hedge against inflation would be gold royalty and streaming companies such as Franco-Nevada and Sandstorm Gold. These companies finance gold miners by providing upfront capital to develop a mining project in exchange for a percentage of their mining output. Gold miners can do well also, but the problem is that their input costs would likely rise in an inflationary environment, such as their energy costs and labor costs, which can detract from profitability. The beauty of streaming and royalty companies is that they would get to participate in the upside potential of gold and silver, without the rising mining expenses associated with inflationary environments.”
Lyn Alden, founder, Lyn Alden Investment Strategy
At Least 1% Of Your Wealth In Gold
“Up until 2007 the gold price largely tracked the increase in Federal Debt, but since then the relationship has largely broken. Initially, the gold price outperformed the increase in US debt, but more recently, it seems to have underperformed.
The million-dollar question being why?
With bonds yields being so low, invariably negative, one would expect gold to do well – let’s say, better than it has. But that clearly has not happened.
But is that about to change?
At Mines & Money last week I spoke with a portfolio manager at a US pension Fund. Although I know he’s always been an advocate of gold, he told me that more and more fund managers were looking at the yellow metal. Increasingly viewing it as a “safe haven asset”.
This does not seem to have fed into the gold market yet, but that doesn’t mean it won’t. Time to take a look at the history books.
Appreciate they 1970’s was a long time ago, but if you compare the bull market back then, with the one we’re in now, two things really jump out at you.
Firstly, how the gold price over the past 20 years or so has largely mirrored what happened in the 1970s and secondly, if the gold price were to take off AND history was to repeat itself, the gold price could go A LOT HIGHER.
Right now, with the increasing debt and general uncertainty across the world, do you think it’s ridiculous to have at least 1% of your wealth in gold? I don’t.”
Simon Popple, Brookville Capital Newsletter
Commercial Real Estate Benefits From Inflation
“Commercial Real Estate: Commercial real estate benefits from inflation…as cost rise most leases provide for a CPI increase annually in recent years that has been 2-3%…in the 1980’s it was 11% also bear in mind that the erosive effects of inflation cause future buyers to pay sales prices with ever decreasingly valuable dollars”
Adam P. Von Romer, Aixs Realty Advisors, Inc.
Bitcoin Is Particularly Interesting In 2020 As An Inflation Hedge
“Similarly to gold, Bitcoin has a limited supply. There will never be more than 21 million coins. This scarcity, coupled with the ability to easily transfer Bitcoin across the world and a very liquid market to exit the position, make it a great inflation hedge. Bitcoin is particularly interesting in 2020 as an inflation hedge due to the Bitcoin Halving that occurs in May 2020. The Bitcoin halving is an event hardcoded into the Bitcoin protocol that occurs roughly every 4 years and cuts the amount of Bitcoin generated per day by 50%. Hence, since supply is cut in half, all that has to happen for the price to go up is the demand to stay constant. To date, there have been 2 Bitcoin halvings (November 2012 and July 2016). After the halving in Nov 2012, Bitcoin’s price skyrocketed from $11 to a high of $1150 per coin in close to 1 year. After the halving in July 2016, the price rallied from $650 to almost $20,000 in a little over 1 year.”
Pascal Thellmann, CEO, CoinDiligent
Stalwart Dividend Stocks Is A Time-Tested Strategy
“While many asset allocation theorists advise young investors to take on more risk because they have time to recover from a poor investment, we believe younger investors might benefit from doing just the opposite with a portion of their portfolio. Since millennials have a long time before they need their nest egg, they should put time and the mathematical principle of compounding to work for them.
By shortening your investment time horizon, you miss out on the opportunity to create what we like to call a compounding machine. It is true that younger investors have a longer timeline and can recover from a riskier investment that turns sour. But rather than just using time as a bandage to try to recover from a soured investment, perhaps it’s smarter to take a portion of that portfolio and invest in boring high-dividend-yield stocks and use the mathematical principle of compounding and time to help build your wealth.
For current income and long-term capital appreciation, investing in stalwart dividend stocks is a time-tested strategy. Investors can implement this approach by screening for companies with growing dividends as a protective hedge for inflation.”
Jack Leslie, CFA, Portfolio Manager, Miller/Howard Investments
Alternative Medical Products, Consumer Loans, Sustainable Business Models
“After selling my company in 2017 I’m investing and invested in several businesses.
Heading into 2020 we’ll face a major crash and recession. Even if the signals are blurry, the data proves it. The stock market crashed nearly every 10 years. Data proofs it: 1987 (after Black Monday), 2000 (tech bubble), 2008 (Lehmann Brothers). That’s why my gut feeingl suggests we’ll face a market correction within the next years. Investments should be backed by going short on major stock commitments.
Besides that we’ll see growth within sustainable business models, alternative medical products and consumer loans.”
Peter Wilfahrt, Versandgigant
Unfortunately, inflation is an economic component that is unavoidable. This is why sensible investors are hedging their portfolios against the risk of higher inflation. Precious metals such as gold are on an upward trajectory, and historically gold has been a good investment choice during periods of economic uncertainty. American investors interested in investing through a retirement account like an IRA are encouraged to have a look at our top Gold IRA companies or precious metals IRA reviews for more information on the space.
Sarah Bauder is a financial writer with over a decade of experience at numerous online publications, writing about alternative investments, retirement, US politics, world economy and more.
