You’ve accumulated a nice little nest egg for yourself, your family and for your future retirement. You have a decent amount of money in the bank, you own a couple properties that are bringing in monthly rental payments, and you even have some put away in the stock market. Unfortunately, for the past several months, inflation has been eating away at your investments. Check out the recent US inflation rate—
June 2022 – 9.1%
July 2022 – 8.5%
August 2022 – 8.3%
The monthly inflation number may be gradually declining, but the June rate hasn’t been that high since November 1981. Inflation is an insidious enemy of the saver. What a dollar purchased in 1980 would cost $3.60 today!
There are ways to protect your nest egg. You may not be able to totally negate the effects of inflation on your portfolio, but you can certainly lessen them.
High Yield Savings Accounts
At the time of this writing, the highest paying savings account that we could find online offered an annual interest rate of 2.75%. There is no minimum requirement at this bank, and your funds are fully liquid—you can withdraw them at any time. What is your local bank paying— .01%?
Treasury Inflation-Protected Securities (TIPS)
These bonds can be purchased directly from the US Treasury (treasurydirect.gov) in $100 increments. Maturities are available for 5, 10 or 30 years. The interest rate on TIPS are indexed to the rate of inflation.
Series I Savings Bonds
The interest rate on Series I US Savings Bonds is based on a fixed rate as well as a semi-annual rate based on inflation. Series I bonds that have been issued between May and October 2022 are yielding 9.62%.
The stock market has always had its ups and downs, but over the past 50 years, the Standard & Poor’s 500, a common stock market measurement, has averaged an annual return of 10.314%. The stock market may have declined recently because of the threat of a recession and lower corporate earnings, but this may be an opportunity to invest more. Remember the old adage. “Buy low and sell high.”
Real property has long been considered an inflation hedge. Recently, however, we’ve witnessed declines in real estate prices because of rising mortgage rates and the hint of a recession just around the corner. If you can afford it, it might be wise to purchase more real estate while prices are lower. Again, buy low and sell high.
If investors are unable to directly purchase real estate, they may want to consider buying shares of REITs in their online brokerage accounts. REITs are Real Estate Investment Trusts. There are several solid REITs right now that pay dividends over 8%. When you do your research, be sure that the REIT can support its dividend for the long term.
Gold is often mentioned as a hedge against inflation. You can purchase this precious metal in a variety of forms—gold bars, gold coins, gold jewelry—even shares of gold mining companies in the stock market. In 1980, the average price of gold on the market was $594.90 per ounce. Today it is more than $1700.00!
Crypto—especially Bitcoin—is so new that no one really knew how it would respond to outside economic pressures like recessions and inflation. Initially, Bitcoin was promoted as an inflation hedge. But recent evidence suggests otherwise. In March 2022, the average price of a Bitcoin was $45,538.68, but in June, that declined to $20,192.20. There are certainly better hedges to protect your assets.
So don’t let inflation scare you. There are ways to protect your hard-earned assets. Be sure to utilize the tried and true in protecting your nest egg, and don’t fall for the latest fads or speculations.
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