Inflation & How to Hedge Against It

March 1, 2021
HerCapital Team

Benjamin Franklin once famously said that there is nothing certain in this life, except death and taxes. However, he may have forgotten to add inflation to the list. 

What is inflation? Simply put, when inflation occurs, the domestic currency is losing value. For example, in the USA in the 1960s, a bar of chocolate cost $0.10, but now costs $1. This is another way of saying that before, you could get ten chocolate bars with $1, but now, you can only buy one chocolate bar with a $1. 

Because of this, inflation is a real risk, as it can make our money shrink before our eyes. Even if we’re earning a good salary and have put some of that money away in savings, we need to make sure that our money is keeping up with the inflation rate and not losing its purchasing power. 

The good news is you can protect yourself against inflation. Here are two of the ways you can do that below: 

  1. Real Estate & REITs: Property values rise when the inflation rate rises, helping hedge against inflation. However, buying real estate can also be a long process and may not be right for everyone at their particular stage in life. As an alternative to purchasing a property, buying REITs (real estate investment trust) would be a simpler way to hedge against inflation. There are REITs in industries ranging from health care to retail, so you can determine your investment strategy by researching what particular REIT you’re interested in. 
  2. Stocks: Stocks usually generate returns faster than bonds, making them more likely to outpace inflation. In addition, corporate earnings grow faster when inflation is higher, which also helps protect your money from inflation.

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