Lets start by saying, that I am NO expert on this subject. Yesterday I mentioned my belief that inflation was just around the corner. I also said I would tell you what I am doing about it. What I say here is what I am doing and is not a recommendation for what YOU should do. But I hope that my comments will prod you into doing some research on your own to see what is best for you. A also hope if you see any flaws in my reasoning that you will tell me before I make a big mistake.
Inflation generally means that money gets worth less and "things" cost more money. In other words if you have a "thing" that is worth $100 today and the currency is inflated by 10% then your "thing" will now sell for $110. So "things" make relatively useful hedges against inflation. But of course there are other forces that affect the market for "things" so it isn't always a direct relationship. For instance if you have an ice maker that is worth $100 in August and there is a 10% inflation between August and December, you may still only get $100 for the ice maker in December because the season is wrong for the market even though money is worth less. So be aware of that when you do your research. I don't buy age-able "things" as a hedge against inflation because age will devalue them, maybe faster than inflation is increasing their price!
I intend to spread my portfolio because of the many variables that may make one or another of my hedges either less valuable or less liquid. I feel I need some of my assets liquid and some very safe.
First, I will have very little cash in the bank when the inflation shows up. Cash will just be a looser in a rapid inflation. I will begin buying "stuff" as fast as I can to divest myself of cash.
Second, my home is a great inflation hedge, in my opinion, because I need it ANYWAY. My home is something I will need as long as I am alive. Its not so liquid in bad times, but I need it to protect me from the elements.
Third, I will be buying Gold and Silver as part of my hedge against inflation because if it really gets out of hand I can always spend the gold. Gold is a very liquid asset and easily converted into dollars if need be.
The fourth part of my portfolio is land. Not houses, but land. Houses will age. Houses have high taxes and high upkeep costs. And, the market for houses is very volatile. Land is somewhat more stable and the taxes are lower. Maintenance is minimal. But land is not so liquid in an emergency situation.
I like old cars. They are a fun hobby so I might as well consider them a hedge against inflation. Back in the 80s I sold off a sizable collection of old cars and was able to pay off the mortgage on my home so that I became debt free. I will continue to collect them because its a great hobby and if inflation gets out of hand the prices will rise with inflation.
And finally I am looking into an idea I had recently, investing in companies that sell "Reverse Mortgages". This seems to me to be a good way to invest in real estate without all the maintenance and tax problems. These companies are essentially betting on the future of real estate values. The owners take care of the maintenance and taxes as part of the mortgage agreement. If real estate goes up in value then the companies asset pool goes up with it. Considering the current state of real estate values, it would seem to me that the only way is UP. Of course, if Obama Care causes a down tick in the average life expectancy then this will increase the value of the assets as well.
Any comments will be appreciated. If my ideas don't hold water, let me know so I can bail out!!!
Jim Isbell
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