Very few people fear inflation in the same way that they are concerned
about a downturn in the stock market. It eats away at your money in a
persistent way that is hard to perceive on a day to day basis. Yet, if
you evaluate the impact of inflation on the buying power of a dollar
after a long period of time the damage can be catastrophic. It is
similar to how termites can eat a home from the inside out over time
once they gain a foothold. The latest figures show that inflation is
rising rapidly and the purchasing power of the US dollar is in decline.
According to the Bureau of Labor Statistics the index for the price of
used cars and trucks continued to rise sharply, increasing 29.7% over
the past year. The energy index rose 28.5% over the last 12-months.To
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Inflation, you can visit wikifx.com official website.
Over the past 10 years inflation has averaged roughly 2%, until this
past year when inflation started to spike in a significant way as
reflected in the Consumer Price Index increasing 5%. Now, let's check
what would happen to your money if inflation averaged 5% for 18 years,
for illustrative purposes. Say you have $20,000 in the bank, earning
interest at a rate of .9%. With an inflationary rate of 5% that $20,000
will be worth just $9,334.60 in 18 years relative to its buying power
today. It took 18 years for that money to devalue in this scenario to
less than half its current buying power today. During those eighteen
years we may have not fully appreciated that our money was losing its
worth if we didnt put in the effort to understand how inflation works.
It is common to not like risk and be frightened by the downturns in
the market. So many of us place our money in the bank and just let it
sit there earning interest. It may feel like your money is safe in the
bank with FDIC insurance. However, when inflation is running at a 5%
annualized rate and a CD is paying a .9% interest rate the numbers just
dont work out pretty for savers.
The bank is one of the places that you can keep your money and know
that it is virtually guaranteed to lose its purchasing power over time.
In fact, you could accurately think that the more time you spend letting
your money earn interest in the bank, the more “real” money that you
are guaranteed to lose.
When the Federal Reserve talks about low or transitory inflation,
while it may be true for the economy overall, it certainly does not feel
that way to the average consumer. When I go to the gas station I can
say for sure that my money does not go nearly as far as it used to. At
night when I look for homes on Zillow I can see their prices rising
rapidly. My neighbor sold their house into a bidding war at well over
asking.
Do Not Ignore Inflation: Fight It With Gold
Inflation is definitely there, it is gaining strength, and it is your
enemy. The urgency for fighting inflation has been especially clear
after the Federal Reserve increased the money supply by 25%. It is
pretty hard to imagine how you can create 25% more money out of thin air
without it pushing prices straight up. The good news is that there is a
clear antidote to the way that inflation slowly poisons your portfolio.
Gold has done a phenomenal job of keeping ahead of the pace of
inflation and has stood the test of time. While the Federal Reserve can
print money, they cant print gold. Gold is ultrasound money in a world
that is addicted to the printing press. The key to letting gold really
work for you is employing it in a way that enables you to both own gold
and earn a yield.
The Solactive Gold-Backed Bond Index has compounded at 14.57%
annualized since 1/3/2006. It is designed to invest in a portfolio of
investment grade corporate bonds, then hedge that portfolio 100% to the
price of gold. Strategy Shares Gold-Hedged Bond ETF (NYSE:GLDB) is
designed to track the Solactive Gold-Backed Bond Index and can be a
great ally in your battle against inflation. This compares favorably
with sovereign gold bonds which are government bonds that are
denominated in the price of gold.
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