How To Protect Yourself Against Inflation
Over the last few months it has been very difficult to make sense of how the stock market has been going up, the real estate market has been going up, bitcoin has been going up, and gold has been going up, all while the economy has been going down.
If you take a look at the world economy, many industries such as the restaurant industry, travel industry, and service industry have come crumbling down as government imposed lock-downs have destroyed businesses and left hundreds of thousands of families without work.
Based on this you would assume that the stock market would fall; but, since the initial COVID crash the stock market has seen steady gains, even as bad news continues to emerge.
If more people are out of work, you would assume to see real estate prices fall, but many areas have seen the largest real estate boom in recent history.
You would think that without discretionary income the cost of precious metal would fall, but gold is at an all time high.
You would think people would be taking less risks and not investing in risky assets like bitcoin but cryptocurrencies have never been worth more.
So why is it, that while everyone seems to be suffering, everything that should be going down has been going up?
One of the main reasons is because of inflation.
To understand why, you need to first understand that $1 today isn’t worth the same as $1 tomorrow. Cash goes down in value over time as more money comes into circulation. This is called inflation, and usually it occurs slowly.
In a normal year you might see inflation of a couple percent, but since the globe was put into a lock-down, many countries printed hundreds of millions of dollars to pay for support programs. For example, in Canada, over the last year the government has increased the amount of money in circulation by 17% to cover the lock-down assistance. At the same time Canada saw a 5.2% reduction in our GDP. When you combine these two figures, the value of $1 in January is $1.22 in December. So if something cost you $100 last year in January of 2020 you should expect to pay $122 for the same item today.
As the lock-down continues, and the world governments continue to print money, we will continue to see high inflation well into 2021.
So how do you protect yourself against inflation?
The only way to protect yourself from inflation is to get out of cash, and get into assets or commodities.
This is what has been happening throughout 2020, where the wealthy have been trying to buy assets in order to safeguard themselves against inflation.
One of the reasons why real estate, gold, bitcoin, and the stock market have seen growth is because wealthy investors knew that if they kept their money in cash through 2020, they would have 22% less wealth in 2021.
They bought into commodities like gold and bitcoin because they have a fixed supply, and therefore increase in value with inflation.
They purchased real estate because as inflation hits, real estate prices increase.
They purchased stocks because even if a company does poorly, they will be able to continue creating products at inflated costs as the economy opens back up.
This article is for informational purposes only; it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.
