Some say cash is king. But according to Ray Dalio, founder of the world’s largest hedge fund, Bridgewater Associates, it may not be wise to keep too much of your investment in cash these days.
“Money is not a safe investment, is not a safe place because it will be taxed by inflation,” Dalio told CNBC last month.
Dalio’s concern came after US inflation hit a 31-year high in October.
And the prices kept going up. In November, the consumer price index rose 6.8% year over year, marking its fastest rise since June 1982.
In other words, consumers suffer a severe blow in their purchasing power.
So let’s take a look at three ways to hedge against inflation – one of which might be worth skipping on some of your extra cash.
Gold is often considered the safe haven asset par excellence.
It cannot be printed from scratch like fiat currency, and its value is largely unaffected by economic events around the world.
The yellow metal has helped investors preserve their wealth for centuries. Some think this could be another of his shining moments.
You can buy gold coins and bullion at your local bullion store. You can also check out major gold mining companies. If gold prices rise, these miners will earn higher revenues and profits, which tends to translate into higher stock prices.
For example, companies like Barrick Gold, Newmont and Freeport-McMoRan generally do well during tough times for other industries.
You don’t have to start big. These days, you can create your own diversified portfolio just by using your leftover digital pennies and pennies.
Once considered a niche asset, Bitcoin has entered the mainstream.
One of the reasons people are increasingly embracing cryptocurrency is because they believe in its potential as an inflation hedge. Central banks can print money as much as they want, but the number of bitcoins is capped at 21 million by mathematical algorithms.
Dalio recently said that Bitcoin is “almost a young generation’s alternative to gold”.
The price of Bitcoin has fallen significantly in recent weeks, but is still up 60% year-to-date. If you want to buy Bitcoin directly, be aware that many exchanges charge up to 4% commission fees just for buying and selling cryptos. A few investment apps charge 0%.
Investors can also get exposure through companies that have tied into the crypto market.
For example, software technologist MicroStrategy has built a stash of 122,478 bitcoins. Electric vehicle giant Tesla holds about 43,200 bitcoins.
Then there are pick and shovel games like Coinbase Global, which runs the largest cryptocurrency exchange in the United States.
It is true that these companies are all quite expensive, trading between $238 and $899 per share. But you can get a smaller piece of Tesla or Coinbase by using an app that lets you buy fractional shares with as much money as you’re willing to spend.
Stocks are volatile, cryptos swing wildly back and forth, and even gold isn’t immune to market ups and downs.
That’s why if you’re looking for the ultimate hedge, it might be worth discovering a real but unsung asset: fine art.
Contemporary artwork has outperformed the S&P 500 by 174% over the past 25 years, according to the Citi Global Art Market chart.
And it’s becoming a popular way to diversify because it’s a real physical asset with little correlation to the stock market.
On a scale of -1 to +1, with 0 representing no connection, Citi found that the correlation between contemporary art and the S&P 500 was only 0.12 over the past 25 years.
Earlier this year, Bank of America chief investment officer Michael Harnett singled out artworks as an effective way to outperform over the next decade, largely due to the asset’s track record as a as a hedge against inflation.
Investing in art by Banksy and Andy Warhol was once only an option for the ultra-rich, like Dalio. But with a new investment platform, you can invest in iconic works of art, just like Jeff Bezos and Bill Gates.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.