How to effectively hedge against inflation? (Complex, multi-part question)?
February 1, 2011 by
Filed under Silver Investment FAQ
I’m not a investment guru by any stretch of the imagination, so please forgive any ignorance, errors, or awkward questions asked out of doubt.
From what I’ve read, it seems inflation will start to hit next year. (yes? no? civil thoughts?) I’m considering protecting myself with the following strategy:
1. TIPS – Apparently, the only good way to play these is in an account w/ a tax benefit. (Does this mean: Roth IRA? Roth 401k?) I have a Fidelity 401K account (can invest in both Roth and non-Roth 401k), a T.Rowe price 401k account (from previous job), and a TDAmeritrade trading account. Should I keep some of my funds in my Fidelity account in a TIPS fund (Roth or non-Roth)? What fund should I be looking for? I guess I can open an IRA through Ameritrade and look for TIPS funds to invest in?
2. Gold, Platinum, Palladium, Silver — I might have missed the boat on Gold? I’ve looked at ticker=GLD. Is Palladium a safe bet? How does one play Palladium? Thoughts on investing in any of these?
3. Real Estate – I gather this is not the best way to deal w/ inflation, but I just bought a smaller second house. I guess the best way to deal with this is to get a 30-year fixed rate mortgage, and pay it off later when inflation makes the outstanding balance “cheaper”. In the meantime, I’m going to try to keep it rented.
I realize this is a complex question. Just fishing for thoughts. Thanks.
Buy TIPS – Treasury Inflation-Protected Securities.
http://www.treasurydirect.gov/instit/annceresult/tipscpi/tipscpi.htm
1) TIPS do protect you against inflation. However the federal government’s dirty little trick here is that you get more interest, which the federal government taxes. So much of the protection you get in buying TIPS goes into Obama’s pocket in the form of higher taxes. Another hidden tax he is laying on those making less than $250,000 a year.
2) I like gold. I prefer gold mining stocks as they are easier to buy and sell with less commissions than on gold bullion and you don’t have to pay to store or insure it. My favorites are Goldcorp (GG) and Kinross Gold (KGC).
3) Real estate is iffy at best. You’ve seen the prices of real estate plummet the last few years. But this may be a buying opportunity.
One that you missed is oil or oil companies. I actually prefer oil as the world will eventually run out of it. We’ll never run out of gold as we don’t burn it away the way we do oil. Oil as you well know is well off it’s high of around $150. Where gold is still pretty close to it’s high. My favorite oil stock is Marathon Oil (MRO). A smaller company which may get bought out as larger oil companies look to increase their reserves.
Good luck in your investments. It’s important to hedge against the inflation that Obama is about to rain down on us.