Inflation Revisited

Back in August, I shared the view that current inflation reading is not transitory. The readings are continuing in the 5% range which doesn’t surprise me – after all Inflation is always and everywhere a monetary phenomenon as Milton Friedman said. Supply shocks exacerbate it, but it is monetary in its’ core.

Inflation means that your money is worth less in the future. For example, with a 5% inflation rate, your 1$ today will be worth about 0.78$ or 78 cents in just 5 years!

The remedy is to hold real assets such as Real Estate and commodities. Gold was traditionally one of the ways to hedge inflation.

Which solution is practical? Real Estate can be held through REITs, which are a good source of dividend income regardless – but be aware that REITs usually have their worst time when the inflation increases and interest rates go up at the same time. Commodities such as gold can be held through ETFs, though they are very volatile. One solution that uses commodities are the managed futures, that are available these days in the form of ETFs.

Which solution is best for you? That depends on your particular circumstances and should be reviewed with a trusted advisor.


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