Both sides of the aisle don’t agree on much these days. However, there appears to be one subject that some members on both sides see eye to eye on, and that is: inflation.
“McConnell lauds Bill Clinton’s treasury secretary for hyperinflation warning.” – Apple News.
What started as a whisper at the beginning of this year has turned into a full-on scream as the word on the street now is not “inflation” but “hyperinflation.”
Everyone has been ok with the rumors of inflation recently because of the free money in people’s pockets flowing from three separate stimulus payments.
Ironically, the free money that is keeping people’s emotions in check about inflation is also the biggest reason for rising prices.
At some point, the jig will be up, and inflation will come calling to collect its due. Once stimulus money runs out, and people cut back on spending because of high prices, stocks will take a hit as companies report lower revenues. The Fed will raise interest rates to slow productivity and, in turn, inflation. With higher input costs, companies will cut back on production, workers, and wages, and the ones lucky enough to keep their jobs will have less buying power.
The economy is headed for a big correction. How big a correction? Nobody knows, but why wait for the shoe to drop? Consumers will cut back on spending, but there are goods and services they will always need, and it’s these essentials that smart investors have always latched onto to combat inflation.
Is there such a thing as inflation-proof or even inflation-friendly investments? Absolutely.
Stocks are not one of those investments. Stocks are the first assets to sink when inflation takes hold. The ideal assets are tangible assets with underlying value – with the price of the asset synchronized with rising prices in general.
The other element of an ideal inflation-busting asset is the ability to generate income that stays in lockstep with inflation. Some goods and services move in the opposite direction of inflation, but essential goods and services – ones tied to housing, food, fuel, and healthcare – typically demand inelastic. That means demand is unaffected by rising prices because they’re essential for day-to-day living.
The key to surviving inflation is to be prepared for it. Investments in assets that keep pace with inflation – ones that generate and distribute reliable, consistent income from an essential asset like real estate – not only supplement potential diminished income in an inflation-fueled downturn but also hedge against inflation as the underlying asset appreciates in value with rising prices in general.
We should all be worried if both sides of the aisle agree on something. This means that the threat is real, and it’s here.
Instead of allowing yourself to be a victim of inflation, leverage it like the savvy investors out there who latch onto inflation-busting assets like real estate. Don’t wait for the hammer to drop and prepare now.