Alexis Assadi on How to Protect Against Inflation

Inflation occurs when the general price levels in a country are on the rise. People in Gilroy have less purchasing power when the cost of commonly purchased items like gas and food rises faster than any accompanying increase in wages. This can damage the value of a portfolio and lead to losses for the investor. Alexis Assadi, an entrepreneur and investor, recommends the following to help protect you against inflation.

Understand what inflation does to cash

As currencies inflate, the value of cash depreciates. That’s why today’s dollar doesn’t buy as much as it did ten years ago. Therefore, if you keep cash in the bank, be aware that it is becoming worth less with each passing day. As such, it’s important to generate a return on it – preferably enough to keep up with inflation. Most governments and central banks target an annual inflation rate of 2-3% per year. That’s how much value your cash may be losing.

Of course, cash has inherent value because it is used for transactional purposes. It can hedge against market volatility. For example, during the Great Recession of 2008, while many stock markets plummeted by 40 or 50%, cash remained intact. People with a lot of it could use it to purchase stocks at a steep discount.

Inflation does devalue cash, but investors should not toss it aside for that reason, alone. Rather, they should understand how cash is affected and make informed decisions with it, stresses Alexis Assadi.

Consider gold, but don’t get caught in the hype

During times of high inflation, investors often flock to gold. They consider this age-old commodity to be a “real” currency because it has been used in commerce for centuries. Indeed, investing in bullion can be an effective way to manage the risk of inflation.

However, “gold bugs” are too often baited into believing theories about impending economic doom. Many pseudo-economists will say that cash has no value because it’s a notion promulgated by central banks, governments and other apparently sinister conspirators. In their view, gold is the one true currency. Conveniently, many of them sell gold and gold-based products.

Gold can have a place in an investor’s portfolio. But it is often volatile and does not produce income or dividends. Like any other asset, gold comes with both pros and cons.

Assess the opportunities in real estate

Similar to gold, investors seek shelter in real estate when they are concerned about inflation. Therefore, property can be a powerful hedge. However, not all real estate is created equally and not all of it rises in price when inflation does. A person cannot simply invest in any property and assume that it will automatically appreciate to counter the effects of inflation.

Instead, an investor should ask the following about a given property. Is it fundamentally poised to appreciate? Is it located in an area with a growing population? Is there a real demand for an asset like this?

As well, would inflation bolster the value of it?

Look towards the stock market

Stocks can also appreciate during times of inflation as investors seek a return on their capital. Sometimes, the best performers are gold and real estate-based stocks. Again, though, the stock market is not guaranteed to produce profits and the performance of various stocks can vary.

Invest Carefully to Protect Yourself from Inflation

The best hedge against any and all risks, including inflation, is to invest with diligence. Novice investors will often latch onto particular concepts, like inflation, and hinge their portfolio on managing it. For example, they may fear inflation and react by investing solely in gold and real estate.

Instead, investors should view inflation as a risk among many. The surest way to defeat it is to study, research, learn and make educated decisions, says Alexis Assadi. Failure to do so can result in far worse than losing 2 or 3% a year.