How to Protect the Value of your Asset from Inflation?
You are reading this post because you want to protect your asset value from inflation. OK let’s suggest the best ways. The very first step is to closely examine the trend of your country inflation rate. For example, in the Philippines; the inflation rate is around 4%.
The next step is to examine the current rate in each of your investments. For example, your bank savings accounts, your money invested in government bonds, etc. are considered your investment vehicles. Each of these investment vehicles has its own rate of return. The rate of return for most investments is fixed. For example, bank has around 3% maximum return for its time deposit account and less than 1% for most ordinary savings account. Government bonds has around 5% to 6% rate of return while real estate rate of return changes.
The third step is to check what investments are affected severely by inflation. This is very simple to check, if the rate of return is equal or less than the inflation rate then the value of your investment will decrease over time. If the rate of return of your investment is just 0.5% to 1% over the current inflation rate, the value of your investment will not grow and will simply break even. The primary reasons why 0.5% to 1% above inflation is still not considered to be good rate of return are taxes imposed in your profits. You still need to pay taxes on the profit of your investments. After paying the taxes, there is no net return left that you can use.
The fourth step is to determine where you can transfer those investments affected severely by inflation so that you can profit substantially from your investments. Here are the best alternatives that worth trying:
1.) Invest LONG TERM in stock market – you can put a substantial amount of your money in stocks. Stock grows around 10% minimum which is way above the inflation rate. If you are beginner in stock trading and are afraid to lose money in stocks, you can find a cost averaging investment program whose portfolio contains only Large Cap stocks (stocks of very big and stable companies which will surely grow in value over time).In the long run, this will grow in value above the current inflation rate.
Take note that it says “LONG TERM” so this means investing your money more than 10 years investment. You cannot guarantee sure profitability in short term stocks investment (less than 5 years).
2.) Invest in Gold – gold value is increasing as ever. There is still time. You can also buy simpler gold jewelry or coins in exchange of your money (converting your cash to some of the gold). Gold minimum rate of return is 25% and still have a lot of room to grow above this return.
Do not forget diversification, some experts believe that only around 5% of your entire net asset should be allocated to gold, the rest goes to other investments like stocks.
3.) Invest in real estate – real estate is a THING that also grows in value when inflation rate goes up. Buying a house and lot in low price at a country with increasing inflation is good technique. This is not straightforward analysis however because you still need to look at the price/trend of real estate and it should be comparable to stocks to qualify. If not, then it’s NOT a good investment against inflation.
Read more details here: If You Fear Inflation, Should You Buy Real Estate?
4.) Treasury Inflation-Protected Securities (TIPS) – these may not be available in some countries but this simply investing in government securities which is protected against inflation.
There are still a lot of ways to protect your hard earned cash and investment from inflation. But the above suggestions are the first things you should check.
Related posts:
- Investing in Gold vs. Investing in Stocks: Which one you choose?
- Why invest in Gold Now| Reasons to Invest in Gold
- How to buy Gold Certificates online
- Treasury Bond Yield and Earnings Calculation