First, this is again not financial advice but me just expressing my views on personal finance with current global market trends that in my opinion is not in anyway transitory. As always, I encourage doing more research than just reading this article before making decisions.
The threat of inflation is all over the news after supply chain issues and massive stimulus that started last year that increased money supply and reduced the number of goods available for consumers to compete on resulting in higher prices. A huge chunk of the dollar for example has been created only in the past two years and the US government seem to not be stopping with its next trillion dollar plan.
There's a view that central banks may taper soon but I see this as very unlikely. The Fed hasn't really moved yet and we've already seen a slowdown in growth making several banks slash their US GDP growth forecasts again this year. Some attribute it to the Delta variant but I do think it's because we're at the peak of the business cycle that the Fed has tried to suppress by never really tightening since the Global Financial Crisis of 2008. Now, the Everything Bubble is just to big for the Fed that letting air out would be too painful for global assets and the global economy.
So, what does all these has to do with you? We all rely on the value of our money and the goods it buys. Inflation now is a global issue, even global food prices are giving us surprising numbers as we move ahead and none of us is not affected by that. One, in my opinion, must find ways to maintain purchasing power by fighting or at least reducing the effects of inflation to their financials. Here are things that I think one should do:
- Put More Money in Savings Accounts with Higher Interest Rates
Digital banks has come out of everywhere offering higher interest rates savings accounts that doesn't lock your money up for a specific period of time than your local brick and mortar one. I think one shouldn't have to worry much if the money they deposit is fully-insured by the government through insurance and they have good cyber hygiene, though people with millions of dollars may have something to think about before doing the same thing as governments don't cover that much money if the bank fails.
One having their savings rewarded 2.5% is doing better than one getting only less than 1% from their bank when inflation for example is around 4% to 5%. It's mitigating inflation the easy way.
2. Make More of Your Money Work on Assets that You Think is Good and Safe
Investing has always been a way to fight and profit instead of just mitigating the effects of inflation eating the value out of your money.
Here you have a lot of options. If your invested money earns 8% and inflation is at 5%, then you beat inflation by 3%, you actually earned money than just lose the value of your money without a fight. This comes with risks but should be worth it if you evaluated the risks and know where you are putting your money on. See my article, Making a Successful Investment Portfolio for more.
3. Invest a bit More on Assets that will Maintain or Even Increase their Value during a Downturn
This is applicable if my views are correct that inflation will persist and the economic growth the world is looking forward to (unless you're betting against it like me) will never really materialize and would instead get the opposite.
The best way to look for these assets in my opinion is to look for assets that didn't get propped up by artificial central bank support. Growth stocks, meme stocks, real estate and even Bitcoin I think are not one of them. Bitcoin together with meme stocks went up significantly during the stimulus checks issuance so I don't really consider it as a financial instrument that didn't get propped up by free money. It's just really hard to determine when it is overvalued.
I do consider precious metals, commodity producing stocks and Monero on the opposite side. Monero is different from Bitcoin after seeing its technological superiority to Bitcoin while being around less than 10% of Bitcoin's price with its new Atomic Swap feature that prevents it from being banned by regulators because of its extreme privacy features without banning Bitcoin. See my article, Chose a Crypto as a Short-Term Investment, Only Crypto that Deserves Bitcoin's Spot IMO for more.
Just a very short list again as always. Again, this is not financial advice and I do encourage everyone to do more research, which I think is applicable in everything that we do so we do things better. Always have a good life with me.
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