In times like these, holding a large Portfolio of stocks can be a stressful experience. The markets for equity have reached new record highs, however, the economic rationale for the soaring prices appears to be a bit questionable.

Old-timers who managed the money they earned during Black Monday (1987) and the Dot-com bubble (1995-2000) warn about the potential for similar situations today, while at the same time Wall Street encourages retail investors to take on even more risk.

Headline investors like Ray Dalio and Mark Mobius are publicly stating that investors must be able to have 5-10 percent of their investment funds invested physically Gold. For instance, the Ray Dalio All Weather Portfolio, for an example, includes the 7.5 percent allocation to gold.

These highly successful investors are suggesting physical Gold to hedge against the stock market , while noting the possibility of currency devaluations aftermath of massive pandemic-related fiscal and monetary stimulus.

In this short article, we'll look at different strategies for the protection of an Investment Portfolio against both Inflation and stock market risk.

The way in which to circumvent versus rising prices

There are a number of items that are often referred to as inflation hedges:

Precious metals (Silver in particular)

Commodities

Real estate investment trusts (REIT)

Treasury Inflation Protected Securities (TIPS)

Like all potential Investments, each class of asset comes with advantages and disadvantages that an investor has to consider.

Precious metals

Holding and purchasing physical Gold or Silver can be a tried and true strategy for protecting yourself from Inflation. Metals that are precious are also an effective option to diversify an investment portfolio and hedge against the risk of stock market volatility.

In the Great Inflation of the 1970s (1963 until 1980) Gold rose 1600 percent and Silver soared 2700 percent. Investors with a sense of direction could buy Silver for $1.29 or the Gold for $33 an ounce by 1963. In the year 1980, these smart investors could earn a profit on their investments of $50 and $800 per one ounce.

The best method of investing to invest in Silver and Gold is to get personal ownership of these Precious metals and save them locally.

There is also the possibility to be exposed to the metals by investing in ETFs, Gold Trusts (e.g. GLD, GLD) and Silver Trusts (e.g. SLV), and certificate programmes (e.g., Perth Mint).

Investors with tax-advantaged retirement savings can buy physical Precious metals with those funds through the creation of an self-directed Gold IRA. Tax-free and tax-deferred Retirement accounts are able to be transferred in Gold IRAs.

Commodities

Commodities can be considered real asset like orange juice and steel rolled. When inflation is high, prices on real products tend to rise.

From an Investment viewpoint, there are two kinds of commodities to be aware of: hard and soft.

Hard commodities must be mined or dug and this category includes the Precious metals such as aluminum, copper, natural gas, crude oil, and so on.

Soft commodities are cultivated in the ground or walk across it with four hooves. Wheat, corn live hogs, corn, and feeder cattle are examples that are soft commodities.

ETFs enable investors to invest in both soft commodities.

Commodity futures are not recommended due to the risk of assignment. Options on commodity futures can be an opportunity to hedge stock prices however, they carry the highest risk.

Real estate investment trust (REIT)

REITs are Investment vehicles that hold pools of income-producing real Estate. Inflation is a force that pushes both rents and prices for property higher.

Investors purchase individual shares of REITs to gain exposure towards Real Estate without taking on the burden of finding, financing, and operating the properties them.

Residential REITs are specialized in houses that are single-family, apartments mobile homes, as well as student housing. Commercial REITs concentrate on office buildings, retail stores hotels, and other types of business properties that generate income.

A small portion of REITs focus on the holding of the mortgages (Mortgage REIT) however the majority of REITs concentrate on holding properties that generate income (Equity REIT).

Treasury Inflation Protected Securities (TIPS)

TIPS also known as Treasury Inflation Protected Securities, provide the security of a Treasury bond with a guarantee that the buyer will receive at least their original Investment back.

The principal amount of the TIPS bond will be adjusted to reflect to the CPI (Consumer Price Index) over the duration of the bond. Annual coupon payments are based on the current principal amount of the bond. This means that the investor gets an Inflation-adjusted payout on their TIPS.

For an example, consider an investor who has $15,000 worth of 5-year TIPS paying an interest rate of 1. If inflation (as measured using CPI) is 4%, then the bond's value CPI) is 4%, the $15,000 worth of bonds will be adjusted to $15,600. The bond's coupon payment is then calculated based on the adjusted value of the principal so the investor receives $156 interest for the year.

Notice that the investor's original Investment (the primary of the bond) is being adjusted for inflation in this example but the investor has locked themselves into a 1% interest rate vehicle in an environment that has higher rates of coupon likely to be in the future.

For those who are wary of risk, the lower return from TIPS could be acceptable for the perception of security offered by a US Treasury bond.

The way in which to sidestep against rising cost of living

We have to be careful when we start talking about the best of anything in the investing world. The best hedge against Inflation https://sites.google.com/view/registeredinvestmentadvisor/precious-metals is likely to be different for a 25-year old than for a 65-year old.

An investor's tolerance for risk also affects what their ideal Inflation hedge will look like. A risk-averse investor may avoid commodities because of volatility while the risk-tolerant investor loads up on physical Silver and shares of energy ETFs.

Why is Gold a skirt against rising cost of living

Gold is perceived as a security against Inflation because the price of Gold increases as the purchasing power of the currency in which the metal is valued erodes.

The cost of an gentleman’s costume is provided as the most classic illustration of Gold acting as an instrument to hedge against Inflation.

In 1922 a hand-tailored wool suit (a aEURoebespokeaEUR suit) along with an extra pair of pants was priced at $25 US Dollars. Gold was priced at $20.67 per one ounce.

Fast-forward to today and similar manaEUR(tm)s suit is priced between $1500 and $2000 with Gold being sold for around $1800 an ounce.

This is 100 years in which a single ounce of Gold has protected its holder from the destruction of Inflation.

Just how to get into Gold

There are numerous options for you to make an investment in Gold. As already stated the most effective Gold Investment involves purchasing the physical metal and then storing it in a location that has the ability to access it.

After that foundation is laid and the foundation is set, there are many methods to make investments in Gold:

Physical Gold Trusts and ETFs (e.g., Sprott Physical Gold Trust PHYS, or GLD)

Mining shares, warrants, and options

Self-directed Precious Metals in IRAs (Gold IRAs)

Gold futures

Optional options on Gold futures

Physical Gold Trust

These Physical Gold Trusts such as GLD (SPDR Gold Shares Trust) are fraudulent as they provide investors with the illusion that they own physical Gold however all the owner actually has is shares of an investment that is (supposedly) connected in some way to physical Gold.

It is vital to realize that these Gold Trusts are not actually securities, they are Gold itself. These are physical derivatives Gold but they do not give an investor any ownership interest in the actual metal.

Shares of the Gold Trusts can supposedly be redeemed for physical metal but only investors with a good financial position are in a position to do this.

The Sprott Physical Gold Trust (PHYS) requires investors to redeem shares in 400 oz increments. With Gold at $1780 an ounce, this means an investor needs 7112,000 dollars worth of PHYS prior to when it is possible to take delivery of actual metal.

GLD, GLD, the SPDR Gold Shares Trust, has an even greater threshold for taking delivery of physical Gold.

Investors who have been approved to redeem 100,000 shares of GLD at a time and request delivery of Gold in physical form. At today’s value (01/07/2022) this amounts to an investment of around $16.8 million US dollars.

Self-directed Precious metals IRA

Precious metals IRAs provide investors with a means to establish a Gold hedge in the stock market using the tax-advantaged retirement money.

Unless an investor is willing to pay the 10% penalty for the early withdraw of their tax-deferred and tax-exempt money (401K 403b or traditional IRA and so on. ) The funds are essentially stuck in some kind of IRS-approved investment vehicle up to the age of 59 1/2 .

Gold IRAs fall into the category of Investments that are approved and permit investors to enjoy the protection and security of physical Gold ownership without paying any penalties or taxes in the process.

Final thoughts

In this short piece, we've talked primarily about using Gold to hedge against the stock market risks caused by inflation.

Stock Portfolios are subject to a variety of other risks, including inflation. There is equity risk as well as liquidity