Profit From Inflation
If you’re an investing dork (like me), here’s a good riddle you can share with your friends:
What is “it?”
Inflation, in economic terms, is where prices of goods increase while the purchasing power of a currency decreases.
The easiest way to see this in real terms is to look at the Big Mac index.
The Big Mac is one of the few standardized food items that can be purchased in many countries throughout the world. But because of currency exchanges, the real price can be distorted.
That’s crazy. A $5 price difference because of different currency valuations.
I’ve talked about this many times. The opportunity you have as an investor to take advantage of currency arbitrage.
But, I’ll be honest, you’re going to have to actively pursue investing strategies to take advantage of currency arbitrage.
This is the same for inflation. If you want to invest and trade while trying to profit from inflation, you’ll have to actively manage your investments. That translates to you spending many hours every week figuring out what you need to do.
This is what I do. I spend that time to figure out what is the best strategy. But, it might not be what you want. It’s a a lot of work.
So how do you ensure that your saving don’t get eaten up by inflation?
You purchase assets which have been proven over time to match inflation. This means, you buy things that remain the same value no matter what happens to a currency.
The three most common are:
- Precious metals.
- Real estate.
I’ve spoken about precious metals many times. I even have a ‘no excuse guide to buy silver’ here.
Collectibles are another thing that combat the risks of inflation. Famous paintings, sculptures, or really any piece of art are timeless.
Real estate is what I really want to focus on though. There are many reasons for why you’d want to own real estate – especially foreign real estate. And there are some specific places you should be looking at.
The bigger picture is that real estate offers protection from inflation AND it can provide a revenue stream. You could rent out a home if you buy residential property or you can grow trees if you buy raw land.
Purchasing real estate in the right place can be an excellent way to diversify your portfolio, give yourself an income stream, and protect yourself from inflation.
Inflation is not yet hitting the US, although that’s what the government wants.
You see, when the US dollar is strong, consumers feel like they are on top of the world. Everything is cheap! However, for foreigners who consume US products, everything gets expensive. Eventually, US products become too expensive, which leads to less consumption, and then eventually drags down the economy.
That is why Japan has been fighting for inflation by printing massive amounts of money. The US will need to start doing the same thing soon if the current dollar trend continues.
For you and I, this is nothing to worry about if we see it coming.
I’ll be sharing something soon about how you can protect yourself from this inflation risk.