How To Hedge Against Economic Recession

Most people would not argue that we are living in uncertain times. With threats of Covid, the Petrodollar weakening in value, unemployment rates steadily increasing, and health and retirement benefits becoming scarcer, it is no wonder that people are feeling nervous about how to plan for their financial future. For those who have been saving for retirement, there is concern that when the dollar loses its value, there may not be anything left in the 401k account when it comes time to retire. The other concern is that the housing market might be a bubble and home prices may catch people off guard as they race higher and higher, right before they plummet, like what occurred in 2008.

There is no doubt that inflation is upon us. A trip to the grocery store costs an average of 3% more than what it cost just 6 months prior. Gasoline has increased by 40% in just 6 months and is the highest it’s been in 7 years. College tuition has increased by more than 25% over the past 10 years. Wages simply aren’t keeping up with the rate of rising prices, but there are solutions to help offset the financial burden that inflation causes.

Firstly, it’s important to be creative in all the ways you can diversify your portfolio. For example, if you have only been keeping your money in a savings account, then your money is losing value when the rate of inflation exceeds the interest earned on a savings or checking account. If your bank is paying you only 1% interest on your savings, but inflation is costing you 7% per year on average, then you are losing 6% of your buying power every year simply by keeping your money in the bank. You can protect savings from inflation by investing in Treasury Inflation-Protected Securities (TIPS), stocks/bonds, cryptocurrencies and precious metals.

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1. What are Treasury Inflation-Protected Securities? Treasury Inflation-Protected Securities, or TIPS, are a type of United States Treasury security whose principal value is indexed to the rate of inflation. When inflation rises, the TIPS’ principal value is adjusted up. If there’s deflation, then the principal value is adjusted lower. Like traditional Treasuries, TIPS are backed by the full faith and credit of the U.S. government. TIPS work like bonds where you are purchasing debt issued by the U.S. government, and receive regular interest payments on the face value, or on the par value of the securities. When the TIPS’s term is up, you are repaid the original amount loaned to the government. You can buy TIPS through your online brokerage account or directly from the US Treasury Department.

2. Stocks and Bonds - Although stocks and bonds will take a dive during times of recession, many have noted that these are good buying opportunities and to keep in mind that cycles are normal in this market. The idea is to never panic sell or sell when the prices are low, but rather to keep holding and dollar cost average, which is to simply make regular increment to purchase more especially when prices fall. As the economy recovers, so will your portfolio, providing you gainful opportunities that would not have occurred had the prices always gone up or stayed the same.

3. Cryptocurrencies - Although sometimes this name has been given a bad reputation, it has created more millionaires than those who have not invested in crypto. 47% of millennial millionaires have more than 25% of their portfolio invested in cryptocurrencies. More than a 1/3 of millennial millionaires have at least half their wealth in crypto. Investing in crypto currencies is considered a high-risk method for hedging against the deflating dollar, but when investing in larger cap cryptocurrency such as Bitcoin, Ethereum or XRP, and when holding for the long term, known as “hodling”, the odds are in your favor that this can be a solid investment strategy for some people who don’t waiting and holding for very large gains. On average, Bitcoin sees gains of an average of 250% - 1000% each year. In contrast, the S&P 500 sees gains at around 34% on average in a given year.

4. Precious Metals – Precious metals can offer some inflationary protection. They don’t carry a credit risk and they can’t lose value since they are in a limited supply and more cannot be printed out of thin air. They are also in demand globally due to their industrial, commercial, and intrinsic value. Gold, Silver, and Platinum are the most common precious metals that investors choose to invest in.

Finally, the most important asset that an investor can invest in is yourself. Anytime you enhance your skill set and offer more marketable assets into the marketplace, or when you invest in a business where there is a demand, and when you can increase your net worth by increasing your earnings, this can also offset the burden of inflation. Earning more money or making your money go further is another way to be financially sound and weather the effects of a recession.

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In at diam efficitur, accumsan felis sed, ullamcorper mauris. Pellentesque nunc mauris, fringilla in quam a, luctus mattis urna. Maecenas euismod feugiat vulputate. Nam vestibulum nibh nisi, ut placerat libero commodo eget. Aenean volutpat pulvinar urna, nec pellentesque neque laoreet non.

Nullam id pretium felis. Praesent feugiat auctor ornare. Cras interdum at ante et vulputate. Fusce iaculis suscipit felis.Sed tincidunt id nisl in porta. Proin sit amet laoreet augue.

In at diam efficitur, accumsan felis sed, ullamcorper mauris. Pellentesque nunc mauris, fringilla in quam a, luctus mattis urna. Maecenas euismod feugiat vulputate. Nam vestibulum nibh nisi, ut placerat libero commodo eget. Aenean volutpat pulvinar urna, nec pellentesque neque laoreet non.

Nullam id pretium felis. Praesent feugiat auctor ornare. Cras interdum at ante et vulputate. Fusce iaculis suscipit felis.Sed tincidunt id nisl in porta. Proin sit amet laoreet augue.

In at diam efficitur, accumsan felis sed, ullamcorper mauris. Pellentesque nunc mauris, fringilla in quam a, luctus mattis urna. Maecenas euismod feugiat vulputate. Nam vestibulum nibh nisi, ut placerat libero commodo eget. Aenean volutpat pulvinar urna, nec pellentesque neque laoreet non.

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