Simply put, the best tool for combatting inflation and the eventual decline in purchasing power of your dollars today is to invest into stocks of good growth companies, and to invest in real estate. Some people see commercials for investing in gold (they were really popular around the 2008 recession) and think that is their best hedge against inflation. Not really. Gold is not suitable for most investor’s long term portfolio.
Investments in good companies with a good track record and balance sheet will help you fight inflation. Why? Because the value of their shares in 20-30 years will likely keep pace if not outright beat the rate of inflation. Their value will likely be worth much more in the future, in whatever dollar amount is fair market for that period of time in the future. So you are putting today’s dollars to work for a much higher potential future value after periods of inflation have taken effect.
Real Estate is another good inflation hedge. Just think about the stories you heard from your parents or your grandparents. While 2 or 3 generations ago, they could purchase a nice suburban home for $20,000 – $40,000, today those homes would likely be worth $200,000 – $300,000 depending on the market. That’s a nice inflation hedge. So thinking about your primary home first is a great place to start, because you are controlling those costs. If you have (and you should have) a fixed-rate mortgage, your monthly payments will remain relatively unchanged for the period of your loan. Meanwhile, over that 15-30 years, the value of your home will likely increase as inflation and other factors play in. So in the final year of your mortgage you will likely be paying much less relative to what other folks who just purchased a comparable home will be paying. Think about the fact that if you purchase a $300,000 home today, it very well be worth more than $1,000,000 in 30 years. Would you rather buy at today’s prices and realize that capital appreciation, or save for 30 years and buy it at the inflated price? That’s taking control of your purchasing power. Get a little farther along in your investment journey, and income-producing real estate is another wonderful tool to combat inflation.