Real Insight. Real Estate.

The last asset you want to hold during an inflationary period is cash. While you won’t lose any zeros in your savings account, your buying power will slowly get eroded. Here’s a great list of the top 10 best hedges against inflation, courtesy of www.egold.com :

10) Stocks. Investors seem conflicted on whether or not stocks provide a good hedge against inflation. Most studies have tracked major indexes against inflation, and they still find that stocks perform decently during inflationary periods – at least as long as inflation stays under 4-5 percent per year. Higher than that, and you’re going to have to pick your stocks carefully. However, some stocks will likely do well no matter how bad inflation gets. If you believe the dollar’s doomed, try an ETF that tracks the dollar in an inverse relationship. Or stick with companies well-positioned to profit from inflation. Investment banks, for instance, are generally pretty savvy at protecting their money, so they’re going to make it their business to ferret out inflationary hedges. That means you can ride off on the coattails of their profits.

9) Art. The market for fine art has actually performed a bit better than gold since 1997. Based on Mei/Moses Fine Art Index, which tracks auction results, fine art investors have seen nice returns on classic and emerging art. If you don’t want to clutter your walls with pricey paintings, investing in Sotheby’s stock  should correlate nicely with the price of art.

8 ) Other precious metals. Gold isn’t the only metal that outperforms during inflationary periods. In fact, silver’s returns dwarfed gold’s during the inflationary 1970s. And there are even more choices, from platinum to uranium to palladium and iridium. Invest via stocks in mining companies, precious metal refiners or directly in precious metal-based coins or ingots to protect yourself against inflation.

7) Inflation-indexed securities. Inflation-indexed bonds and derivatives are pegged to the U.S. government-reported inflation rate. If the rate goes up, so does the return on your bond or derivative. TIPS (or Treasury Inflation-Protected Securities) are the inflation-indexed bonds issued by the U.S. Treasury, and their returns adjust yearly based on the inflation rate. Of course, dollar bears argue that inflation-indexed bonds will be worthless when the dollar collapses. You’ll have to weigh the risk against your own views on the dollar’s future.

6) REITs. A Real Estate Investment Trust is a corporation that invests in real estate, then distributes its income (90 percent by law) to investors in the REIT. REITs hold commercial real estate such as malls and apartments, and while, their yields may slacken with inflation, they’ll still provide a reliable stream of income if well-picked.

5) Foreign Currencies. One of the best ways to capitalize on a falling dollar is by parking your cash in another currency. Highly risky, and potentially very rewarding, currency investing isn’t for the unstudied or faint of heart, but there are quite a few companies out there that will give you a practice account. Another, more straightforward way to bet against the dollar is by investing in an ETF that’s designed to move in the opposite (or inverse) direction of the dollar’s value.

4) Food. Food costs rise precipitously when inflation runs rampant because people have to eat. And they’re going to keep paying for food even if they can’t afford much of anything else. Some of the companies best poised to capitalize on the rise in food costs aren’t necessarily the ones whose names you see on labels in your supermarket. Those companies will be hurt by rising energy and production costs. Instead, consider in investing in seed producers or fertilizer companies.

3) Oil. The demand for commodities such as oil will dip during inflationary periods but it won’t disappear anytime soon. In fact, demand is rising in developing countries and this bodes well for oil speculators. If you’re new to investing in oil, one of the safest ways to do it is via oil ETFs or via stock in specific oil companies.

2) Real estate. More than anything else, real estate protects you against inflation rather than helping you to profit from it – particularly when you’ve got a fixed-rate mortgage. If inflation hits hard enough, the bank that’s holding your deed stands to lose money while the relative cost of paying your mortgage will go down on a dollar basis. Other real estate hedges against inflation include REITs (discussed above) and farm land, which tends to do well during inflationary periods as food costs rise.

1) Gold. Long before there was a U.S. dollar, there was gold, and it’s gold that everyone goes back to when fiat money loses its strength. Why exactly? Because gold is finite. If you packed all the gold in the world into a cube, it wouldn’t fully cover a tennis court. And that cube is only growing about 1.5 percent in weight every year. Gold acts as a great hedge because investors have few other options where they can safely park their money.

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