Investors experienced inflation shock when the Bureau of Labor Statistics reported that the Consumer Price Index (CPI) for April 2021 increased faster than it has since September 2008. The Fed dismissed the sharp rise as transitory due to the pandemic. Any reaction of the Fed that increases interest rates will have an significant impact on the financial market’s volatility.
For hedge against such volatility you should consider to add the 5 following assets to your portfolio:
1. Farmland
Food is the third-largest category used to calculate the CPI. This means inflation is partially calculated based on the price of certain food commodities. Instead of investing in the product you could consider investing in the soil these commodities are grown in. The advantage of farmland is you can profit from the land appreciating plus annual cash flow from the crops. Farmland has a 70% correlation with the CPI, and a nearly 80% correlation with the Producer Price Index, which tracks the change in sale prices.
2. Debt
Lock in rates for some of your bigger monthly expenses. Housing is one of the biggest monthly expenses. Refinance and switch your mortgage to a 30-year fixed rate, if your mortgage is variable. You eliminate inflation on one of your biggest expenses. The same works for car payments.
3. Art
Fine art is another physical asset that often increases in value and outpaces inflation. You don’t have to be rich to invest in fine art. Through platforms like Masterworks, you can buy fractional shares of fine art. The premise is similar to crowdfunded real estate: you buy shares in verified fine art and earn a return when the art is sold.
4. Stamps
Stamps boom in times of inflation. Stamps are considered flight capital due to their transportability and have been used to hedge against inflation for generations.
5. Cryptocurrency
Cryptocurrencies like Bitcoin and Ethereum have a few advantages over government-backed fiat currencies. They are decentralized, so the government can’t manipulate them by printing more money and supply is mostly limited. But Cryptos are significantly more volatile compared to more traditional inflationary assets like gold or real estate. If you do invest in cryptocurrencies to hedge against inflation, consider it rather as speculation than a storage of wealth and allocate funds accordingly.
Sven Franssen