Inflation was already a stone’s throw from 8% before war broke out involving two countries that account for a large share of energy and agricultural commodities throughout the world.
It wouldn’t shock me to see this number as high as 10% in the coming months.
Working in an industry that is obsessed with markets, I find most of the questions people are now asking about inflation come at it from the perspective of their portfolio.
Should I buy commodities?
How about TIPS?
Is it too late to buy Energy stocks?
Have you seen the yields on the Series I Savings Bonds?!
How do I hedge against inflation???
The way I see it the time to prepare for inflation is ahead of time, not while it’s happening.
From 2009-2020, the U.S. stock market was up more than 13% per year over and above the rate of inflation. If you’ve been an investor for the long-term, you were hedging against high inflation before it ever got here.
Regardless of how you’re managing your investments to account for higher prices, there are other ways to hedge inflation beyond your portfolio.
Here are some ideas for the best personal finance inflation hedges:
A Costco membership. Are prices rising at Costco just like other grocery stores? Sure. But buying in bulk is a good way to hedge against further price increases should they come.1
Your Costco membership also comes with slightly lower gas prices, which at the very least pays for your annual membership and then some.
Plus, you can still get a Costco hot dog and a soda for a $1.50, the same price it was in 1985 (I’m only half kidding here).
A 30 year fixed-rate mortgage. The whole reason to invest in the first place is to improve your standard of living. If you just buried all of your money in your backyard it would eventually lose its value over time:
You can think of debt in the opposite way. With debt your liability is what loses value over time and that’s a good thing. This is what makes a mortgage with a low interest rate one of the best inflation hedges on the planet.
The median sale price for an existing home in the United States is now around $350k. Assuming a down payment of 10%, using the average 30 year mortgage rate over the past 5 years of 3.7% would give you a monthly payment of roughly $1,450.
With inflation running at 8% over the past year that would mean someone’s $1,450/month payment from last year would …….