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5 Effective Ways To Protect Yourself from Rising Inflation


dollar squeezedIt is no mystery to anyone that the US government has pumped trillions of dollars into the economy, all while holding interest rates at record lows over the past two years. Anyone with a basic concept of supply and demand, with all of these dollars in our economic system, will fear that rising inflation is becoming more and more imminent as each day passes.

Even though our government is doing everything they can to get our economy back on its feet, we as financially educated individuals must find ways to protect ourselves against the possibility that we may be facing future periods of serious inflation…and even worse…hyper-inflation.

Below are some key ways and investing strategies you can implement into your financial plans and portfolios to make sure you don't fall victim to a diminished purchasing power.

Follow at least one of these investing strategies, and you will counterbalance the effect of inflation. Follow two, and you will thrive when inflation starts to rise. Follow three, well, use your imagination!

1) Buy Physical Gold and Silver

gold bars
By investing your dollars into physical assets such as gold or silver, you fully protect yourself as inflation increases or decreases. As the value of the dollar goes down, the price of these precious metals tend to increase in value.

Additionally, a metal like silver differs with gold because it is in limited supply, and is used by big companies around the world. Where gold is hoarded, silver is still used and will only increase in value as the silver supply continues to decrease over time. Having a mix of both of these precious metals on hand is a great way to protect yourself from rising inflation. Just be sure that you have the metals on hand and purchase them from a certified dealer so you won't be scammed.

2) Invest In Other Currency

If the American currency decreases in value, other currencies will increase in value (at least relatively). Last time I checked, the Euro is 1.5 times the value of the dollar, but don't quote me on it. Be sure that you know what you are doing if you choose to invest in other currencies as this can be extremely risky if you are clueless as to how this works.

If you play the market right though, you will still end up on top by diversifying your currency holdings in your portfolio of investments. Again, be sure that you have physical currency on hand, as purchasing "derivatives" of paper currency in the market can be manipulated and leave you with more risk than if you physically held it.

3) Invest in Positive Cashflow Producing Real Estate

real estate
When investing your money into real estate outside of your personal residence, be sure that the properties you invest in will turn a positive cash flow on a monthly basis. If you don't know what that means, be sure that the income from the renter's monthly rent covers all of the expenses of maintaining the property. Also, budget to have some left over for yourself as this becomes passive income.

The beauty of owning cash flow producing real estate is that not only do you make money on a monthly basis, you are also exposed to the possibility of asset appreciation. Additionally, you get to create phantom income as you write off on the depreciation of the structure of the property over time. Whatever you do, do not invest in something that will turn a negative cash flow from day one…this property will eat you alive…even if it increases in value. Before you decide to invest in a piece of property, I would highly suggest that you get professional advice from your advisers and mentors.

4) Start a Business

start a businessBy starting a business, you also begin to build an asset that increases or decreases in value as inflation rises or falls. The inflation rate doesn't directly impact the value of your business, but it certainly affects what you can charge for your goods and services that you provide to the market.

By managing your business cash flow each month, you can cushion the effect of inflation and also leverage the extra cash flow to invest in real estate and physical precious metals. On the other hand, working at a job gives you very little, if any, control over the income you make.

Even if you just start a side business, get something going!

5) Find The Highest Interest Bearing Saving's and Checking Accounts

high interest savings
No matter what, we all will need to have some cash on hand at all times even if inflation gets really bad. To put you in the best position possible, be sure to keep your money in the highest paying savings/checking accounts or in treasury inflation-protection securities (TIPS).

As inflation rises, your money will be safer in these vehicles compared to those that don't accumulate interest, or more speculative investments. Having cash on hand is important no matter what the inflation rate is. Just be sure that you are being paid the highest interest rate possible no matter where you keep your money.

These are the best tips I can give you to help you weather any "inflation storm" that we our bound to experience. If you have any other suggestions for readers please feel free to share them in the comments!

Editor's Note: I've begun tracking my assets through Personal Capital. I'm only using the free service so far and I no longer have to log into all the different accounts just to pull the numbers. And with a single screen showing all my assets, it's much easier to figure out when I need to rebalance or where I stand on the path to financial independence.

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