9 Ways to Save Ourselves From the Inflation Impact

The infusion of liquidity is a monetary policy used by the central banks to stimulate the economy as a way to increase the money supply in the financial system and in order to support the bank reserves…

The strong increase in the money supply at a time when many countries other than the United States offer better investment opportunities may lead to an outflow of capital from America and its targeting to developing countries instead. This would inevitably generate inflation there, and for this reason countries like Brazil, China and even Germany, tend to criticize the U.S. policy.

Save Ourselves From the Inflation Impact

The main conclusion from the present situation is that regardless of a further injection of liquidity and whether it will be successful or not, the result would be inflation and a devaluation of the dollar.

Dispose of all your cash

This may not be so easy for investors who do not like risk-taking, but the fact is that in periods of rapid inflation, your money is literally worth more today than tomorrow. So, you should ‘spend’ them. No matter if you will buy a new car now instead of next year or whether you will invest in the stock market.

Bet against the dollar

What else to do with your cash? The other side of the equation states that when there is inflation, the currency of the country concerned is generally devalued. This means that you would do wisely if you bet against the dollar. If you are aware of currencies and the macro tendencies, you can even play with fluctuations between the dollar and other currencies like the yen and the euro.

Get rid of U.S. government securities

U.S. government bonds are not a good investment in an inflationary environment. This is because when interest rates in the U.S. begin to rise (to nearly zero base rate as in the current situation this is inevitable), this will lower their price and any investment in them would be a loss.

Bet against the U.S. government

You can benefit from the collapse of U.S. bonds and sell them short. This will not only protect you from their likely collapse, but also a good opportunity for making a potential profit.

Buy bonds insured against inflation

This type of U.S. government securities, known as TIPS, offer the security of government bonds combined with the bonus of protection from inflation. Unlike regular securities, the value of these bonds is adjustable to inflation, so it guarantees that you will not be at a loss when the dollar starts to fall.

Buy gold

In anticipation of inflation the price of gold has already risen significantly in 2010 but if inflation really happened, the price of this metal denominated in dollars would rise even further.

Buy oil

Like gold, oil is denominated in dollars. When the dollar decreases, it takes more dollars to buy the same quantity of raw material. This means that in times of inflation the price of oil rises and so do the profits of the players in the sector.

Invest heavily in markets outside the U.S.

The weak dollar means that it can achieve higher returns on non-US markets. Ultimately, if investors do not buy U.S. bonds, this means that they will put their money elsewhere. Where will you find your opportunity depends on how much you’re willing to take risks. Of course, you should not put all your eggs in one basket and completely forget about investing in the U.S., but remember that the U.S. indices will suffer because of the weak dollar.

Save Ourselves From the Inflation Impact

Invest prudently in shares of U.S. technology companies

Technology companies seem to find a place in the heart of any serious investment portfolio. Regardless of economic circumstances, demand for the latest innovations in hardware and software will always remain high. Think of the success of the products of Apple Inc. The company managed to sell 1.7 million iPhone 4 in just three days, in the midst of a severe recession and iPad tablet 3 million in just two and a half months of the launch of the product.

събота, 23 юли 2011 г.