How to Protect Yourself From Inflation

Don’t keep your money in the bank if you don’t want to lose money

Photo by olieman.eth on Unsplash

Inflation has hit a new record high in the US, 7%, the highest increase since 1982. But why is this happening? There are several reasons:

• Supply chain breakdowns, caused by lockdowns and reactivation of consumption. Producers can’t satisfy the demand for products and services, so prices go up.
• Labour shortages. It has become a lot harder to find workers, especially in areas where it was already hard to find talent. Also, it’s making salaries increase, with some companies increasing prices to cover this cost.
• A sudden burst of spending. There has been a drastic increase in spending after lockdowns and the offer can’t still keep up with the demand.
• Increased supply of money. Central banks have been printing money like never before. One in five dollars were created in 2020 alone.

We are not used to this level of inflation, normally it’s been always below 3% (except for some countries with double digits like Argentina), so you might be wondering what you can do to avoid losing purchasing power. These are things you can do to protect your finances:

• Don’t keep money in your bank account, apart from a rainy day fund for emergencies.
• Don’t add money to a bank deposit. Interest nowadays is ridiculous, you’ll get around 0.1% interest, 1% if you are lucky (and probably for just a few months).
• Don’t have a lot of cash sitting around in your house. Central banks print money every day, so why would you save something that they can create out of thin air?
• Consider investing in index funds or ETF’s linked to indexes like the S&P500, which has had an average annual return of 10.5%.
• Invest in property. Real estate is a good long term investment. When interest rates are low is easier to get a mortgage and also the real cost of repaying becomes cheaper over time due to the value of money decreasing over the years.
• Cryptocurrencies and staking. This is a risky investment, so I wouldn’t recommend you to invest a high percentage of your savings. You will need to do your own research, but if you invest in the right coin and the right time, you could make some good gains over time.
  I would like to mention as well staking, as it’s something that probably not many people know.
  Staking cryptocurrencies is a process that involves committing your crypto assets to support a blockchain network and process its transactions. In exchange, you get a reward. It’s very similar to how a bank deposit works, you deposit some of your money and you get a reward after an agreed period of time.
• Commodities. Gold is probably the most known commodity and it’s been always popular as a hedge against inflation. However, its reputation is at risk, as investors are finding other areas in the market to protect themselves against inflation.
  There are other types of commodities where investors put their money. Other precious metals like silver or platinum, energy commodities like oil or gas, or agriculture commodities like wheat, sugar etc.

Are you investing in any of these? Or maybe in something else? Let me know in the comments.

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