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Best hedge against inflation?

The following is my answer to a Quora question: “Which of the following is best hedge against inflation? Land, investment, real estate, precious metals, or a mutual fund invested heavily in large capital stock market?”

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Photo by Sergio Roberto Bichara from FreeImages

The best hedge against inflation is property and REITS. The price of homes and property rise with inflation because their prices are also affected directly by inflation. REITS will grow due to the increase in value of the underlying asset.

Gold, commodities and precious metals tend to be a good hedge against inflation, but only as a broad basket of investments. Individual commodities may not perform as well. Gold is also an excellent hedge against political risk.

Debt and equity instruments are poor hedges against inflation. Equity instruments such as stock will rise eventually because that is the market trend, but in the short term, may not keep up with the sudden increase in inflation. Debt instruments, which include sovereign bonds are terrible hedges against inflation since the yield is fixed over the term. They are used to balance a portfolio, not hedge against inflation.

Terence Kenneth John Nunis

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