Add an Inflation Hedge to Your Portfolio

Adding an inflation hedge to your portfolio can be a good way to protect yourself against inflation in the market. There are many different types of inflation hedges that you could choose to invest in. Here are the basics of the inflation hedge and why it is important to include in your portfolio.

Inflation Hedge

As an investor, you always have to have an eye on inflation. Inflation will rob you of some of your returns. You need to be able to beat inflation regularly in order to be successful. Because of the negative effect of inflation on a portfolio, you should consider adding an inflation hedge to it. An inflation hedge is an investment that is going to be able to keep up with inflation regardless of the performance of the stock market. This is basically a way for investors to diversify their portfolios away from the traditional types of investments and protect themselves from inflation.

Importance

This type of investment is important because it will protect you regardless of what is going on in the market. If the stock market crashes, you will still have a portion of your money invested in this inflation hedge. At that point, you will still be able to have some value in your portfolio even though the performance of your other investments is suffering.

Commodities

Commodities are a common type of inflation hedge. You could potentially invest in gold, silver, oil or natural gas. These types of commodities are going to remain valuable regardless of what is happening in the market. Since they are actual assets instead of a share of ownership in a company, they are going to be able to keep up with inflation in most cases. 

Real Estate

Certain types of real estate can also be considered an inflation hedge. As a rule, you will not want to include residential property in this category, because of fluctuations in property value. However, you can include farm land and commercial real estate in this category. Both of these types of land are going to retain their value in nearly every market.

I Bonds

Another type of inflation hedge is the I savings bond. This is a type of bond that is offered by the United States Treasury. With this type of investment, you are going to invest a certain amount of money in a savings bond. The Treasury is going to pay you a particular rate of interest over the life of the bond. In addition to that, they are going to pay you a certain amount of money every six months in order to keep up with the rate of inflation. They are going to look at the Consumer Price Index in order to gauge the amount of change in inflation in the market. This type of investment will allow you to do a little bit better than the rate of inflation over the long term.

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