In my most recent Yahoo!Finance column, I wrote about America Saves Week, and some of the challenges people face in trying to squirrel away cash for the future. In the comments under the column, a reader suggested that people should instead spend everything they make, because he anticipated hyperinflation in the future.
I agree that there is trouble on the horizon for the U.S. economy, including higher inflation. But if you think the U.S. is returning to the inflation levels of 1980 – 13.5 percent – then rather than save nothing, it makes more sense to save more, and invest in vehicles that have traditionally offered a hedge against inflation.
To name a few: Treasury Inflation Protected Securities (or TIPs); defensive stocks, such as consumer staples and pharmaceuticals (or defensive-play mutual funds), that will eventually benefit from rising prices; and commodities, which can be tapped by investing in an exchange traded fund that tracks a commodities index, such as iShares Goldman Sachs Natural Resources Index Fund (IGE).
Precious metals are another traditional inflation hedge (such as gold mutual funds or gold exchange-traded funds like iShares Comex Gold Trust (IAU). But some pundits think that gold futures, which are up more than 40 percent since last August, may be played out. And there is an ongoing debate about whether gold has provided an effective inflation hedge over time.
If you believe a hyperinflation scenario is ahead, this would also be a spectacular time to buy a house with a low-interest, fixed-rate mortgage, and stay put. You’ll be paying the same monthly amount in ten years with dollars that are worth less (rather than paying skyrocketing rents).
On the other hand, inflation has been relatively tame for years. So unless you really believe we’re headed for doomsday — U.S. currency crashes, and we go back to the stone age of bartering – worrying more about inflation than savings is allowing the tail to wag the dog.
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on Tuesday, March 4th, 2008 at 2:16 pm and is filed under economy, inflation, saving.
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