Looking for inflation-protecting investments

Ron Finke
Your money

The Federal Reserve Board chairman, Jerome Powell, tells us that the present surge of inflation is transitory. But whatever its duration, it is wreaking havoc on the budgets of many American families. Just in terms of gasoline, a two wage-earning couple could easily be spending an additional $100 to $150 per month on transportation.  

Ron Finke

For investing, inflation can also be devastating to your financial health, especially for retirees who do not receive wage increases to match. In January 2022, Social Security benefits will rise by 5.9 percent, the highest increase in many years. But since that program was intended to be only a supplement of retirement income, it will be important to ensure that investments are also likely to keep pace with higher costs of living. 

It is easier to begin with what investments are hurt the worst. In a word, debt. Bonds are a promise to pay a certain rate of interest for a certain term of years. Most bonds have a fixed interest rate that does not change. Therefore, if you have a 30-year U.S. Treasury bond paying 2.09 percent, the dollars you receive each year will now not even buy the same sack of groceries they would last year.  

Furthermore, if you want to sell that 2.09 percent yielding bond to someone else, no one in their right mind will pay you full value for it. Soon and very soon, I predict that the lending public will begin to refuse to provide this almost free loan to the federal government on such poor terms. This current miracle has only been possible because the Fed is printing money and lending it to the government itself, using the good reputation of you and me, the American people who actually owe the debt! 

In the next few weeks, I will be discussing in more depth the effects of higher inflation upon various kinds of investments and using examples of the two periods of the past 80 years of highest inflation, the 1940s and the 1970s. 

Spoiler alert: Gold, silver, other commodities, perhaps crypto currencies, and the company stocks of particular industries will likely supply the best performance during the inflationary period, however long it will last. As for me, I do not trust the collective group of Ph.D. economists who are so secure in their belief that they know what to do and will be able to execute their plans to control the inflation they have so desperately desired.  

(Past performance is no guarantee of future results. The advice is general in nature and not intended for specific situations.) 

Ron Finke is president of Stewardship Capital in Independence. He is a registered investment adviser. Reach him at rcfinke@stewcap.com.