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How to Protect Yourself From Inflation

As we approach the last few weeks of 2021, the total U.S. inflation rate is at 6.8%. As a quick reminder, inflation is when the cost of goods goes up beyond what they were before and, as a result, there is a fall in the purchasing power of money. Here’s a look at some specific examples:

  • Gasoline prices are up 58% from last year.
  • Used car prices are up 31%.
  • Hotel prices are up 26%.
  • Meat and similar grocery items are up 16%.

Young people have never been exposed to inflation like this since we haven’t had inflation this high in 40 years (1982).  However, history shows us that we’ve been here before.

 Past and Present Plans to Fight Inflation

The 1970s was the decade of inflation. The inflation rate rose an average of 5% each year. It was the first time I noticed people investing in single family homes. In those days, there were less qualifications to get a mortgage. I was inspired by a lady who got rich by assuming other people’s mortgages after they couldn’t pay them anymore. By the end of the 70’s, she made enough money to completely retire. Because of inflation, the real estate she purchased became more valuable than the mortgages.

In 1980, the annual inflation rate was up to 14%! Ronald Reagan was elected president, and the first thing he did was raise interest rates to a whopping 17%. Because of this measure, the inflation rate went from 14% to 6.8%. This was really smart, because when interest rates go up, inflation goes down. Money becomes more expensive to borrow, so there’s less cheap money circulating in the economy.

The Federal Reserve announced that they will be taking similar measures in 2022. Here’s how:

  • Tapering. This means that the Fed will purchase fewer bonds. Starting in January, the Fed will buy $60 billion of bonds each month instead of $90 billion.
  • Raising interest rates. We measure interest rates in basis points. For example, 100 basis points = 1 percent. The expectation is that they will raise interest rates anywhere between 25 basis points (.25%) and 80 basis points (.8%)


Can Crypto Protect You Against Inflation?

“On one side, we have all that I would call the bubble assets: Tech, innovation disruption, cryptocurrencies,” the Richard Bernstein Advisors CEO and CIO told CNBC. “On the other side of this see-saw, you have literally everything else in the world. I think if you’re looking at 2022 into 2023, you want to be in ‘the everything else in the world’ side of that see-saw’. “Cryptos are the biggest financial bubble ever in history. This is just a monster one,” said Bernstein.

Cryptocurrency is in a bubble. I believe it is similar to what we experienced with the dot-com bubble. Blockchain technology has made decentralized finance (finance that is separate from federal and central banks) possible. So, whereas crypto is relatively protected against inflation, it shouldn’t be the only or primary way you hedge against it.

Crypto is a completely new innovation like the internet was in the 90’s. The actual technology behind cryptocurrency, much like the internet, is here to stay. However, cryptocurrency is in a stage infancy. Because it is nascent, among other things, cryptocurrency is volatile. When the federal banks begin to regulate it, we don’t have any idea what that regulation will entail. You should always diversify your portfolio, so here are eight other ways you can hedge against inflation.


8 Ways You Can Hedge Against Inflation

An inflation hedge is simply an investment that protects against the decreased purchasing power of a currency. So, when you hedge against inflation, you invest in assets that won’t lose their value, or assets that will rise in value with inflation. Here are eight types of investments that are wise to try right now:

1. Treasury Inflation-Protected Securities (TIPS bonds): TIPS are Treasury bonds that measure the rise and fall of inflation. The interest rates paid on those bonds rise in accordance with inflation. So, you have the value of the bond plus the interest it pays. TIPS pay interest twice a year at a fixed rate on 5-, 10-, and 30-year maturities.

2. Short-term Bonds: These come to maturity quickly. If interest rates go up, you can invest with short term bonds on a much quicker basis that allows you to take advantage of good interest rates.

3. Dividend Paying Stocks: A dividend is a portion of a company’s earnings that is distributed to you. If you buy the correct kind of dividend paying stock, they can be a good long-term inflation hedge.

4. Consumer Staple Stocks: The definition of these is in the name. They are simply stocks in companies that produce staples humans use every day. They are recession proof because people will buy these products regardless of inflation. If you can find a Consumer Staple Stock that also pays dividends, that’s even better!

5. Oil Stocks / Commodity ETFs: Again, these investments reflect things that people need regardless of inflation. Exchange Traded Funds, or ETFs, trade like a stock and bought and sold like a stock. I prefer these to mutual funds because after you go to sell a mutual fund, the money doesn’t settle in your account for about 3 business days. Also, with a mutual fund, you have to pay taxes on money you didn’t make.

6. Real Estate: Investment properties perform really well in inflationary periods. Property values appreciate with inflation. In fact, the price of real estate almost directly reflects market inflation. If you rent out your properties for cash flow, you’re in good shape because rent prices rise with inflation.

7. Gold: Investing in gold is typically a safe bet, though the price of gold has not gone up with inflation this year (though it hasn’t been negatively affected, either.) I think one of the reasons is because people have been putting their money in crypto instead. Crypto trades like gold, and some people even call it digital gold!

8. Other Commodities: Examples include oil, agriculture, other precious metals. Because they are necessities, these assets usually go up in step with inflation—sometimes even more.


The Book of 1 Chronicles mentions a group called The Men of Issachar. They are described as “men who had understanding of the times, to know what Israel should do” (1 Chronicles 12:32, ESV.) My prayer for you is that you would be people of understanding who are able to discern the times God created you for! From that discernment, I pray a blessing of increase over your life. Please comment any questions you may have, and God bless you!

[And, if you haven’t listened to The WealthBuilders Podcast, this blog reflects our 50th episode. Click here to check out the show, or give us a search on Spotify, Apple Podcasts, or wherever you like to listen to podcasts.]


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