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A review of alternative investments to hedge inflation




With the fragility of the stock market and the quick recent rise of interest rates, investors are looking for alternative solutions to their retirement savings strategy. The SP500 fell 4.4% from its high on May 10, Nasdaq fell 7.5% since April 28, demonstrating the market’s ability to fluctuate widely while reminding investors not to be too heavily dependent on short-term outcomes. Regardless of this expected volatility, the stock market remains the most liquid market in the world, providing income to retirees from company dividends and stock sales with reasonable assurances. Yet, news mania has been consumed by other “investment” options, such as Bitcoin, and the like, without fully disclosing inherent risks to these alternative asset classes. Here are a few alternatives, depending on your financial situation, all choices deserve a hint of caution.


Cryptocurrency is basically a giant spreadsheet where all participant investors can see each other's transactions. Without any physical aspect to the asset, it leaves enormous speculative risk for an investor to rely on its success. Yet, with its rapid rise of 95% YTD (BTC/USD), Bitcoin remains a popular alternative.


Bonds are the most traditional of all asset classes but remain the least popular due to their boring nature of slow growth and guaranteed returns at maturity. In light of rising interest rates, bonds are almost always to lose money before they reach maturity. Yet, it’s prudent to point out that there are many types of bonds, including floating rate (banknotes), junk bonds (low-quality bonds), and foreign bonds, all of which may serve to hedge a rising interest rate environment.


Real estate has gone through a major decline and has since fully recovered; the iShares Real Estate index (IYR) climbed 70% since the major low of March 23, 2020. Residential real estate doesn’t typically trade in the same way but houses certainly made gains since the start of the pandemic. Owning physical property or tradeable real estate investments may provide a hedge against inflation.


Gold and oil are the quintessential alternative asset classes, known best for their ability to hedge against inflation. The world has changed to make these securities fashionable to trade, yet remains subject to supply chain disruptions, such as the recent Colonial cybersecurity hack causing gas prices to increase on the East Coast. An Oil investment tradeable index (DBO) has climbed 133% since the major low of April 21, 2020. Oil remains the most promising investment in an inflationary environment and it's notable that oil shipping supplies are severely limited still since the demand glut of last year.


Noting the world of Hollywood, you can invest in movies as a producer as well as participate in other venture capital offers. All come with a major risk of losing your entire investment, yet, if the cause serves as something greater than financial gain, then these types of strategies may be worth looking into.


At Eureka Wealth Management, I help my clients mitigate risk by keeping their focus on what’s important to them. I also make note of any investment risks and opportunities that arise and apply tax strategies that may enhance financial returns. I also do retirement planning, insurance, and tax & estate strategies. Call for a free, initial consultation at (760) 537-0791 or book online at eurekawealthmanagement.com.


Sources

FT 5/12/21 “US consumer prices rise at fastest pace since 2008” link

What Is Cryptocurrency Exactly? | Morning Joe link