Putting money into value investments like gold, real estate, stocks, and cryptocurrencies help curb inflation.
Because cash loses purchasing power over time, holding it causes people to lose their savings. This has led people to put their money into value investments like gold, real estate, stocks, and now cryptocurrencies. will it be Is Bitcoin a hedge against inflation?
To be considered a store of value, an asset must be able to maintain its purchasing power over time. In other words, it must increase in value or at least remain stable. The key properties associated with these assets are scarcity, accessibility, and durability.
Gold as a hedge against inflation
In previous inflationary periods, gold has had a mixed record. In the 1980s, there were times when holding gold gave its owners negative returns.
The Morningstar data gives an idea of how gold has had a spotty track record during past inflationary periods. A commodity that is supposed to hedge against inflation is expected to rise when consumer prices rise. During periods of high inflation, especially in the 1980s, there were times when gold owners ended up earning negative returns.
In recent times, gold has slowly lost its shine as a cover. During the pandemic and even when the waves have subsided, people show less interest in gold. It is still considered to be good enough to hold value in the long term, but for the short term, the metal is now considered less reliable.
The real estate sector as a hedge against inflation
The bursting of the US housing bubble made it clear that real estate cannot always be relied upon as a hedge against inflation.
For a long time, real estate has been considered an effective hedge against inflation. This myth, however, was shattered. with the US housing bubble. In March 2007, home sales and prices in the country fell sharply. As data from the National Association of Realtors (NAR) reveals, sales fell 13% to 482,000 from a high of 554,000 in March 2006.
In the United States and around the world, real estate prices are closely related to factors such as government policy, the political and economic stability of the country, demographics, and the economy. premises, geographical location and infrastructure, among others. The parameters are simply too many for a normal person to understand.
Stocks as an inflation hedge
Long-term investment in stocks helps mitigate the effects of inflation. You just have to make sure that the company has solid fundamentals.
Some stocks help protect the value of your investment. Even if these stocks take a hit from impatient short-term investors, they fare well over time. But keep in mind that not all stocks work well to hedge inflation. You have to find companies that have solid fundamentals and are more likely to get better dividends for their shareholders.
A Common Thread: Linking Gold, Real Estate, and Stocks to Centralized Entities
Traditional asset classes are controlled by centralized authorities, making them vulnerable to bias and pressure.
The value proposition of all conventional asset classes is invariably linked to the policies of centralized authorities, such as federal governments or banks. An asset so intrinsically associated with a system that asset holders cannot interfere with is not really reliable coverage, as centralized authority exerts one-button control over procedures.