Are you afraid of losing your hard earned money to inflation or recession? If YES, here are 19 best ways to protect your money from inflation or economic collapse.
There are some things that are certain in life. Things like tax, death and of course inflation. Some certain external factors such as inflation and economic collapse can go a long way to erode the value and purchasing power of money. This just goes to show that keeping money in the bank as savings may not be the best idea if you want to protect the value of your money during those perilous times.
To this effect, it would be wise to look out for investments and other avenues where you can “put in” your raw cash so that they can be tangible but still be able to withstand most forms of unfavorable economic conditions.
What is Economic Collapse?
An economic collapse refers to the breakdown of the national economy. It would be characterized by the downturn of economic activities for a sustained period of time, increase hardship, increased poverty and various forms of civil unrest such as protests, riots and possibly violence et al. In some cases however, it can be a case of deep recession, with society still functioning basically as normal but with a lot more poverty in the system. Or, it could be much worse.
What is Inflation?
Inflation on the other hand is the persistent increase in the general price level of goods and services in a country, and is measured as an annual percentage change. Under conditions of inflation, the prices of things rise over time. To put it in practical terms, during period of inflation, every dollar you have at hand becomes even smaller than it was before the inflation because the amount of goods and services it can purchase has reduced.
Economic progress is accompanied by inflationary pressures. Inflation can come about as a result of too much money being in the economy, which will result to an increase in the prices of commodities. Of course, if a household’s two primary sources of wealth creation – asset and income appreciation – rise at a rate equal to or greater than inflation, the negative effects of inflation are neutralized.
But experience has proved that this is never the case. The prime indicator of this effect is that, while minimum wages have increased, the overall price of goods has outpaced the average salary increases of recent years. In this vein, it is of utmost importance that individuals and investors need to understand and implement investment strategies that will ensure that their assets do not reduce in value as time goes on.
Most at times, the things that pose the greatest risk to your business are those things that you may not put too much thought to or things you might even ignore. Inflation is one of those forgotten risks. People do not see inflation as a big deal because, it has been kept under a tight leash for the past five years, averaging only 1.6 percent annually across key consumer goods.
However, history and economics can agree that it will not stay that way forever. So how can you protect your money from inflation and economic collapse? Here are a few ways to do that:
19 Best Ways to Protect your Money from Inflation and Economic Collapse
1. Get Rid of Your Cash: some people who do not like taking risks may not like this, but the truth still remains that during periods of rapid inflation, the value that money has can greatly reduce within a short period of time. One way to deal with this is by spending the money.
Why not buy that car who always wanted to buy now instead of next year when the car will increase in price? Why not invest in the stock market now and get more shares now rather than later. Letting your money to sit will you cost you more in the long run.
2. Target Date Funds: Target-date retirement funds are designed to allocate assets according to time horizon. For instance, a Target Date 2020 fund, is designed for investors who plan to retire (and therefore start withdrawing money) within the next five years.
As a result, the investments will be allocated more conservatively. A Target Date 2065 fund, by contrast, will be much more aggressive. The benefit of this is that you do not need to be worried about asset allocation and balancing.
The fund takes care of the maintenance on your behalf. Some brokerages have also started selling index-fund-based Target Date funds, which carry a low expense ratio. For instance, a twenty five year old can invest a part of his or her money into a Target Date 2025 fund, even though he or she will be retiring many decades in the future.
You should however note that Target Date funds are designed for individuals who will withdraw a small portion of the total account balance each year – not those who will withdraw the entire balance at once. If you need access to your entire principal, you may discover that even a near-date fund may be invested more aggressively than you’d like.
3. Personal Portfolio: if you feel that a Target Date fund is too aggressive for your taste, you can always design a unique conservative portfolio that reflects your liquidity goals and risk tolerance. This portfolio should be a clever combination of low-fee, high-quality bonds, securities and other investments. It should be rebalanced periodically.
If you’re not sure how to design this portfolio, you could ask a financial advisor or an investment advisor to create, monitor and manage this type of portfolio on your behalf. The advisor will design it to maximize the potential for principal preservation while trying to outpace inflation.
4. Real Estate: real estate is a well-known investment that has proven to be able to withstand the effects of inflation. This is because Home values and rental incomes both tend to keep pace with inflation, making real estate a strong contender for this type of goal.
If you have adequate funds to buy a house in cash, you remove risk associated with leveraging on a property. You’ll further remove risk by purchasing Class A real estate (new construction in safe neighborhoods with high tenant quality and low turnover). Hire a licensed property manager to handle the day-to-day managerial aspects of your investment.
If you do not have enough money to buy Class A properties in cash, or you do not want the stress of owning a physical property, don’t worry. You can still invest in Real Estate Investment Trusts, or REITs. When you are looking for a trust or REIT to invest in, you should look for those that have a strong track record that shows low fees, low volatility and healthy dividends.
5. Bonds: if you can endure some risk, then you can look towards investing in bonds in order to get higher returns. Bond funds invest in a basket of IOUs issued by governments and/or companies looking to raise cash. When someone invests in a bond, they are essentially lending the bond issuer their money for a fixed period of time.
During the time period when someone is holding a bond, he or she will receive a fixed rate of interest, known as the coupon, and when it matures, those who invested when the bond was first issued should get their original capital back.
You should however note that there is a probability that you can lose out on your investment. If the issuer gets into financial trouble, it could fail to meet its interest payments or even repay your capital. If that happens, you could get back less than you invest or even nothing at all.
Usually, bonds are considered as being a lower risk venture when compared to stocks and they also offer a relatively steady and predictable income, though some bonds do carry higher risk than some shares.
If your intention for investing in bonds is to avoid the undesirable effects of inflation, then you will need to find a portfolio that offers a higher earning potential than the current cost of living. It goes without saying that the higher the return a bond offers, the higher the risk involved.
6. Invest in shares: during periods of inflation, equity investors experience less effects because during such periods, companies will usually increase the price tag on their products in response to increasing cost of production. Due to this, the profit that the company makes will increase.
As a result, company earnings may have the potential to keep up with inflation, all things being constant but there can be no guarantee of this; as some companies may fail in inflationary times. If you are considering investing in the stock market, remember that the value of the shares that you buy can fall as well as rise and you could get back less than you invested.
Going for funds that invest in a wide array of stocks is more advisable because of the less risk involved in diversifying your shares. It is important to understand that dividends are not guaranteed; they depend on companies’ profits and those companies can decide to cut or cancel their payouts altogether, all of which can also cause share prices to fall.
7. Commodity: Commodities can also be often viewed as a hedge against the rising cost of living. When an economy is doing well, consumers and corporations are generally financially better off and as a result they typically spend more.
In such an environment, supplies can be squeezed and companies start charging more for their services and goods, including raw materials and commodities. For example, when the price of oil rises, the cost of petrol and diesel follows suit. But commodity prices can be highly volatile, as the market for oil has shown in recent times, and investing in the asset class is not for the risk averse.
If you are considering putting some money into commodities, there are a plethora of exchange-traded funds (ETFs), which track the price of both individual as well as baskets of commodities available. In addition, there is no shortage of actively managed funds, which invest in shares of commodity and commodity related firms.
8. Bet against the Dollar: during times of inflation, the value of a nations currency reduces. That means you would be wise to bet against the dollar. A number of ETFs allow you to do this. If you’re more sophisticated about currencies and macro trends, you can play exchange rates between the dollar and other currencies like the yen or euro.
9. Bet against Treasurys: You can benefit from the flip side of the collapse in Treasury bonds by shorting them. You can do that by purchasing an inverse ETF just like the previous play on the dollar.
10. Buy TIPS: Treasury Inflation-Protected Securities (TIPS) are a special type of U.S. Treasury bonds that has the ability to provide the safety of a government bond with the added bonus of protection against inflation. You can buy these outright, or via the iShares Barclays TIPS Fund ETF (NYSE: TIP). Unlike conventional Treasury’s, these bonds see their value adjust with inflation to ensure you don’t get eaten up as the dollar fades.
11. Buy Gold: Gold has already significantly run up in price in 2010 with the expectation of inflation — along with a low-risk, bunker mentality among some conservative investors. But if inflation takes hold, this dollar-backed commodity could soar even higher. If this turns out to be the case, don’t tempted by mining companies. Your best bet is to buy gold through a reputable dealer or through a gold ETF like the SPDR Gold Trust ETF.
12. Invest Heavily Abroad: if the United States currency is low, this could just mean that there is bigger returns to be made on investments abroad. After all, if investors won’t be buying Treasury’s as readily, they will putting their money somewhere.
You should carry out researching in order to find out where the best opportunity exists abroad. Many foreign stocks trade on domestic exchanges as ADRs and can readily be traded via your brokerage accounts. If you are not comfortable investing in a specific stock, you can invest in a specific region or currency via an ETF
13. Invest Sparingly in Domestic Tech Stocks: Technology companies seem to be a very important in any portfolio. No matter the state of the economy, groundbreaking computers and innovative software that change the way we interact with the cyber space will always be needed and thus be demanded.
Consider the massive launches that Apple Inc. pulled off in the recession with the 1.7 million iPhone 4 sold in the first three days, or 3 million iPads in about two and half months after its debut. And this doesn’t even acknowledge the weight of corporate IT spending as businesses upgrade networks and optimize productivity with the latest gadgets and software.
14. Invest Sparingly U.S.-Based Multinationals: one good way to invest in domestic stocks but still evade the undesirous effects of inflation will be to invest in multinational companies. Blue chip companies like Caterpillar Inc. and United Technologies Corp., which saw significant lifts to profits in the fourth quarter of 2009 thanks to a weaker dollar are a good place to start.
This can be credited to the fact that when the dollar is weak, there is a boost in the foreign operations of these multi nationals which more than offsets challenges in the states.
In addition, a weaker U.S. dollar means cheaper exports — so foreign businesses can buy expensive machinery at a better price and are more likely to go shopping. Domestic companies like CAT and UTX are actually helped by a weak dollar — so seek them out as a way to balance your major investments abroad.
15. Food: a downfall in food supply is never a pretty occurrence; take Venezuela for instance. People who believe that such couldn’t happen in their country or that they could easily get what they want simply because they had the money were quickly proved wrong. Even the supposedly wealthy in Venezuela are waiting in long lines with everyone else.
While things are still relatively stable, it makes sense to build a food stockpile slowly but surely. You can pick up a few key food items each week at the supermarket to build up your food bank without having to spend thousands in bulk food acquisitions. It’s best to keep your storable food bank list simple and concentrate on common foods that you already consume regularly. The food you should go for are foodstuff with a long shelf life.
16. Precious Metals: if you have some spare amount of money (that is not your emergency fund), you should consider converting them to precious metal in order to save them from inflation. Again, during times of economic uncertainty, it’s best to keep your wealth where you can directly control it – as local as possible.
So which of the various precious metals is the best to invest in? Silver and gold have over the years shown that they can hold their value and sometimes even increase in value relative to paper money. And in the worst case scenario of economic collapse, gold and silver can become money again.
In the United States of America, there is always the tendency that guns and ammunition will become very valuable, possibly even as a currency as well if the economic collapse gets ugly. The cost (value) of ammunition has skyrocketed, especially as further governmental restrictions loom.
Furthermore, the value of gold and silver had increased especially in foreign countries where their currencies are unstable. It is a good idea to convert some of your extra cash into gold, silver or lead (ammunition). These metals will likely hold their value better than fiat money and they’re easily tradable with your immediate neighbors or someone thousands of miles away.
17. Land: if you can take on the added expense, moving from your house to another property with more land space can be a good move. If you’re in a place of abundance, buying productive land will be significantly more valuable than most paper assets during periods of severe economic downturn.
The extra space can be used by you to diversify into agriculture. Ultimately, it’s even better to be able to produce your own food than to stockpile it in bulk. Even a small piece of land will be worth its monetary investment as it will pay you much larger dividends year over year than cash at the bank ever could.
18. Off-grid Power: another good investment you can make is to produce your own electricity with solar panels or wind mills, or a combination of both. Having a grid-tied system is better than nothing, but having a battery bank is where the true value is.
In fact, it may be wise to start by investing in a battery bank first, charge them at night when grid rates are much cheaper, and then use that power during the day. You can recoup the amount you spent on the batteries and you can add solar panels as you can afford them.
19. Bitcoin: even though this may not be considered as a tangible asset, but it has the advantage of being used without incurring excessive fees associated with traditional banking, thus making it a worthwhile hedge at the very least.
Unless something drastic happens that takes down the internet, Bitcoin very well could also become a de facto international reserve currency. It’s simply better money, and efficiency will always win. In the meantime, why not learn how to use Bitcoin as a means of protecting your privacy, opting out of traditional banking, and using it to pay for those tangible items mentioned above?
In conclusion, inflation is sometimes called the worst type of tax because you may not even notice it as it happens. Hypothetically speaking, earning four percent in a savings account while inflation grows at seven percent makes many feel four percent richer, while in fact they are three percent poorer.
There is no need to bury you money in a field and there is no need to live in constant fear of an economic collapse. There are a lot of investment strategies that can allow you to escape the undesirable effects of inflation and economic collapse.
All you have to do is to choose an investment that aligns with your goals and level of risk tolerance, monitor its performance, and seek outside assistance if needed. You can battle inflation without exposing yourself to undue risk. Keep your money on a leash and don’t let it run away from you.