Anyone who regularly buys a cup of coffee and eats out at fast-food chains would have definitely noticed that prices have gone up. Inflation has reached its most heightened level in 40 years, skyrocketing to 7% in 2021 for the consumer price index. Adding up other categories would amount to more than just the already towering 7%.
Massive price hikes are hitting some products that cause supply disturbances as the economy rebounds from the Covid-19 pandemic much faster than what is expected. Price hikes of certain products are denting many people’s family budgets. It’s been quite a while since the United States has suffered from such serious inflation.
Whenever inflation hits, the first thing that comes to mind is to earn more money to keep up with the rising prices, but it doesn’t always work that way. Even if you don’t notice it that much, you’re getting robbed of money with inflation taxes. So sometimes, it isn’t about making more, but rather about protecting your money.
There are four hedges to combat inflation without needing a big-time salary increase. Here are the avenues to start with:
Stablecoins
The fiat currencies around the world are highly prone to inflation because a commodity or physical good doesn’t back them. Since the real-world currency gets issued by central banks and the government, the value of money decreases over time as more cash floods the circulation.
Fiat currencies are meant to lose value over time, and this is the very scene where investments come to play to acquire capital appreciation. However, since investments like real estate, security, and the like require a long-time locking period, they quite lack liquidity.
Securing your money’s value while maintaining liquidity has something to do with stablecoins.
When people hear the word cryptocurrencies, the first thing that comes to mind is probably Bitcoin (BTC) and Ethereum (ETH). They regard cryptos like this as extremely volatile assets that are highly prone to price fluctuations. But contrast to this belief, one popular cryptocurrency class is actually designed to match or even outdo the stability of fiat currencies.
Stablecoins are cryptocurrencies that are pegged to a certain value of an asset. One stablecoin you might be familiar with is Tether (USDT), which is backed on a 1:1 with the United States dollars. To put it simply, one USDT has the same value as one US dollar.
Stablecoins can serve as your barricade to protect your money from inflation.
Since the prices of stablecoins are, well, stable, they can be utilized as a reliable medium of exchange. They can replace traditional cross-border transactions that are plagued with hefty transaction fees. This allows you to save more money with dealings.
Moreover, some platforms offer a traditional fixed term for your money to grow. While central banks only pay you about .50% to 1% interest every year, saving your money as a stablecoin can make you up to an 8% interest rate per year. For instance, an online exchange like Binance gives an option for Flexible Savings, which offers about 6% USDT per year, paying daily interest.
Stablecoins can generate interest that can cushion your finances against inflation.
Fine Art Collection
Fine art has transcended inflation across various periods of human history, so it was regarded as an investment of passion that nourishes potential economic benefit. Art goes way beyond just merely buying for pleasure. They are also a profitable investment that appreciates value over time.
According to the reports of Artprice, blue-chip artwork prices exceeded S&P 500 by about 180% in 2000-2018. The art industry is enormous, currently having a worth of $1.7 trillion.
The fine art market is very high. However, the amount of capital needed to invest in getting a hold of a simple artwork can cost millions. This makes this investment option solely for the elites and filthy rich personalities.
But thanks to Masterworks, you can now invest in a multi-million worth of art with only a small amount of money.
Essentially, Masterworks purchases blue-chip iconic artworks and sells them pretty similar to those of stocks. Through the fine art investing platform, you can trade and purchase shares in “blue-chip” masterpieces from popular artists like Banksy, Kean-Michel Basquiat, Pablo Picasso, Claude Monet, etc.
There’s a downside to this investment, though.
Since artworks are for long-term investments, this isn’t a feasible venture for individuals in their old age. Masterworks hold art pieces for about three to ten years before selling, which may be a disadvantage for older people. Hence, the platform decided not to accept contributions from people 70 and above.
However, interested investors have another option to sell their art shares on Masterwork’s secondary market. You can trade your Masterwork shares, similar to how you trade stocks on Robinhood.
Luxury Watches
Luxury timepieces are among the best hedges against inflation. If you look back in the previous decades, luxury timepieces have generated excellent yields for those in the market. They satisfied both agendas of collecting mechanical work of arts while having a good investment.
For many years, luxury watches like Rolex, Patek Philippe, and Audemars Piguet have served as tangible passive income-generating assets.
Since the 1800s, timepieces have been popular, yet the supply has never caught up with the extreme demand. So, demand drove prices for these luxury timepieces to all-time highs. In fact, the shortage of luxury watch supply is so dire that it pushed the growth of its secondhand market to $20 billion.
Supply is what dictates the demand of any product, so luxury watches that belong to a limited collection will never decrease in price even as time goes by because they are rare.
Yet, not all luxury watches can be considered as a hedge for inflation. Timepieces that can be worth your investment are only those that have ‘demand.’ If the piece has no special feature or any cutting-edge technology, they are only as good as cheap buy-ins.
Investing in luxury watches is a unique investment opportunity that tends to be overlooked by crowds of people. The luxury watches industry has been expanding considerably, indicating that vintage high-end watches can be one of the best buys you can make.
When you invest in a luxury watch, you acquire the prestige of owning a valuable brand name and jewelry piece while hedging against inflation.
Cryptocurrencies
Over the next 10 to 20 years, cryptocurrencies will do well and produce good investment performance, especially Bitcoin, whose price is swinging wildly.
Each time the Bitcoin market crashes, it comes back, sticks out to an all-time high, and surpasses it. This is how Bitcoin has performed in the past few years. The crypto trailblazer has proven its capacity to become a great inflation hedge in a long-term investment.
A dollar today won’t have the same purchasing power in the next decades because of inflation. This is why it is crucial to find investment avenues that will allow you to combat the decline of your money’s purchasing power.
Inflation can greatly damage your savings. So, even though saving some cash for your financial security is quite handy, keeping too much at rest might not be a good idea.
To protect your wealth, you need to put your money at work by investing in stocks and tangible things that increase value in the long run. Plan how you can make your money earn.
By catching up with inflation, you can maintain your money’s purchasing power (or value). Perhaps, even grow it to a large extent.
