The best assets to own during inflation and the best assets to own during a crash aren’t necessarily the same assets, though there’s some obvious overlap. They best investments to own during inflation are also different than the best investments for prosperity or even a depression.
Which asset is best depends on which economic event is occurring. Every economic environment is beneficial to some assets and absolutely brutal to others. Let’s focus on the one on many investors’ minds — the best for inflation.
First, it’s important to know which level of inflation we’re talking about, because low inflation, moderate inflation, and hyperinflation all have different responses that can be good calls or horrible calls — it really depends.
For example, if inflation hits a level of 25%+ per year, the political fall out could mean that literally nothing is safe. A scared and frightened government might even try to ban gold like they did back in the 30s.
If we’re talking about 3-5% inflation, a well-balanced portfolio might be perfectly fine. It really depends on the severity of the inflation. I’ll break it down below.
- Low-Inflation Hedges.
Low inflation can usually be countered with long-term bonds and mutual funds that track stock indexes, like the S&P 500. It’s literally that simple. A little inflation is much more managable to a portfolio than a lot of inflation.
Honestly, when inflation is 1-3%, that’s not really much of a worry and any typical portfolio should usually do fine.
- Moderate-Inflation Hedges.
Moderate inflation is typically handled best by a nice well-balanced portfolio with resource stocks, hard assets like gold and silver, and other “real world” assets like land. Real estate is generally seen as a good inflation hedge, though that market has been incredibly bumpy for the last few years — for obvious reasons.
My favorite moderate inflation hedge is gold, hands down. When inflation is 4-15%, these are the best assets to have.
It’s important for me to make a little disclosure — I don’t believe hyperinflation is going to be coming to America soon, unless something huge and political occurs. Moderate inflation or deflation are the big risks. Hyperinflation is a different animal.
You can learn more in my Hyperinflation in America article.
- Hyperinflation Hedges.
Runaway inflation is much more dangerous. Cash can become destroyed after just a few years. Depending on how bad it gets, hyperinflation is likely best handled with pure hard assets within one’s control, if not just for the sake of financial security.
Gold coins, silver coins, scrap copper, coal, farmland — these are examples of hyperinflation-proof assets. My favorite hyperinflation hedge is gold, hands down.
If you want to learn more about gold being a good inflation hedge specifically, check out my article that asks “Is Gold Really a Good Inflation Hedge?”
You also need to likely check out the gold prices and fear article, that explains that gold does NOT react to inflation in the short run — it reacts to inflation fears in the short run.
By the way, if you’d like to learn more about economics and economic liberty, don’t forget I have an entire website dedicated to discussing capitalism. Check out my What is Capitalism? article over at Capitalism Institute.
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