At times like the present, holding a large Portfolio of stocks can be nerve-wracking. The markets for equity have set new records, but the rationale for the soaring prices seems rather shaky.

Old-timers who managed funds in the midst of Black Monday (1987) and the Dot-com bubble (1995-2000) warn of the possibility for similar situations today, in the same way that Wall Street encourages retail investors to take on even greater risk.

Headline investors like Ray Dalio and Mark Mobius are publicly declaring that investors should have 5 to 10% of their investable funds invested physically Gold. In the Ray Dalio All Weather Portfolio as an example, includes an 7.5 percent allocation to gold.

These highly successful investors are suggesting physical Gold as a hedge against the stock market , while also highlighting the danger of currency devaluations aftereffects of massive pandemic-related fiscal and monetary stimulus.

In this article, we'll look at different strategies for the protection of an investment portfolio against inflation risk and the stock market.

Recommendations on how to sidestep versus rising cost of living

There are several assets that are commonly considered an inflation hedge:

Precious metals (Silver particularly)

Commodities

Real estate investment trusts (REIT)

Treasury Inflation Protected Securities (TIPS)

Like all potential Investments Each of these asset classes have positives and negatives that an investor must consider.

Precious metals

The purchase and keeping of physical Gold or Silver can be a well-established method for hedge against Inflation. Precious metals can also be an effective way to diversify an investment portfolio and protect against risk in the stock market.

During the Great Inflation of the 1970s (1963 until 1980) Gold gained 1600 per cent and Silver rose by 2700%. Investors with foresight could purchase Silver for $1.29 and gold for $33 an ounce in 1963. In 1980 these savvy investors could earn a profit on their Investments at $50 and $800 per one ounce.

The ideal method of investing in Silver as well as Gold is to get personal ownership of the Precious metals and store them locally.

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

Investors who have tax-advantaged retirement savings can buy physical Precious metals with those funds by opening an auto-directed Gold IRA. Both tax-exempt and tax-deferred Retirement accounts are able to be transferred to Gold IRAs.

Commodities

Commodities can be considered real asset such as orange juice or rolled steel. During inflationary times prices on real products tend to rise.

From an Investment perspective there are two kinds of commodities that you should keep in mind: soft and hard.

The hard commodities have to be mined or dug and this is the case for precious metals, copper, aluminum crude oil, natural gas, etc.

Soft commodities can be found in the ground or walk on top of it on four hooves. Corn, wheat live hogs, corn, and feeder cattle are examples that are soft commodities.

ETFs allow investors to invest in both soft commodities.

Futures on commodities aren't recommended due to the risk of assignment. Futures on commodities are an opportunity to hedge stock prices however, they carry an extremely high risk.

Real estate investment trust (REIT)

REITs are Investment vehicles that have pools of income-producing real Estate. Inflation is a force that pushes both rental rates and property prices higher.

Investors purchase individual shares of REITs to get exposure the Real Estate without taking on the burden of finding or financing the properties the properties.

Residential REITs are specialized in housing units, single-family homes mobile homes, single-family houses, and student housing. Commercial REITs are focused on office buildings, retail stores hotels, as well as other forms of commercial properties that earn income.

A small proportion of REITs are focused on the holding of loans from mortgage lenders (Mortgage REIT) while the majority of REITs focus on the holding of income-generating properties (Equity REIT).

Treasury Inflation Protected Securities (TIPS)

TIPS, or Treasury Inflation Protected Securities, combine the security of an Treasury bond with a guarantee that the buyer will receive at least their original Investment back.

The principal amount of TIPS bonds is the principal amount. TIPS bond is adjusted in line with the CPI (Consumer Price Index) for the duration of the bonds. Annual coupon payments are based on the current principal amount of the bond. This means that investors receive an inflation-adjusted payment from their TIPS.

As an example, consider an investor who owns $5,000 worth of TIPS with a 5-year term paying a 1% coupon rate. If the rate of inflation (as measured by CPI) is 4%, then the bond's value CPI) is 4percent then the value of the bonds is adjusted upwards to $15,600. The bond's coupon is then calculated based on the adjusted value of the principal so the buyer receives $156 in interest for the entire year.

It is important to note that the investor's initial Investment (the principle of the bond) is being adjusted for inflation in this case, but the investor is locked into a 1%-interest rate in an environment in which higher coupon rates are likely to be offered.

For those who are wary of risk, the lower rate of return offered by TIPS may be acceptable for the perceived safety of the US Treasury bond.

The best way to sidestep against Inflation

We have to be careful when we start talking about the best of anything in the investing world. The best hedge against Inflation 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 quibble contrary to rising cost of living

Gold is regarded as a hedge against Inflation because the price of Gold increases when the purchasing power of the currency in which it is priced erodes.

The cost of an gentleman’s suit is used to illustrate an example of Gold being used as an insurance against Inflation.

In 1922 a hand-tailored wool suit (a aEURoebespokeaEUR suit) with an additional pair of pants cost around $25 US Dollars and Gold was sold at $20.67 per ounce.

Fast forward to the present and a comparable manaEUR(tm)s suit will cost between $1500 and $2000 with Gold being sold for approximately 1800 dollars an ounce.

That's 100 years where a single ounce of Gold has protected its owner from the devastation of Inflation.

Exactly how to purchase Gold

There are a number of options to invest in Gold. Like we said, the ideal Gold Investment involves purchasing the physical metal and storing it locally where you have easy access to it.

Once the foundation has been laid There are a variety of ways to invest 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 IRAs (Gold IRAs)

Gold futures

The options available on Gold futures

Physical Gold Trust

The Physical Gold Trusts such as GLD (SPDR Gold Shares Trust) are misleading because they give investors the illusion that they own physical Gold when all the owner actually has is shares of a security which is (supposedly) tied in some way with physical Gold.

It is important to recognize that these Gold Trusts are securities, not Gold itself. They are derivatives of physical Gold but they do not provide an buyer any ownership interest in actual metal.

The Gold Trust shares can supposedly be redeemed for physical metal but only well-funded investors are in a position to do this.

The Sprott Physical Gold Trust (PHYS) demands that investors redeem their shares in 400oz increments. With Gold around $1780 an ounce that implies that an investor must purchase $712,000 worth of PHYS before it's possible to get actual gold.

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

Qualified investors can redeem up to 100,000 GLD shares at a time and request the delivery of Gold in physical form. at today’s rate (01/07/2022) that equates to an https://sites.google.com/view/registeredinvestmentadvisor/precious-metals investment of around $16.8 million US dollars.

Self-directed Precious metals IRA

Precious metals IRAs offer investors a way to create an Gold security hedge with the tax-advantaged retirement money.

Unless an investor is willing to pay the penalty of 10% for the early withdraw of their tax-deferred , tax-exempt funds (401K, 403b, traditional IRA, etc. ) The money is essentially stuck in some kind of IRS-approved Investment vehicle until age 59 A 1/2 .

Gold IRAs fall into this category of approved Investments and offer investors the security and protection of physical Gold ownership without paying any penalties or taxes in the process.

Conclusions

In this article, we've talked primarily about using Gold to protect against stock market risks caused by inflation.

Stock Portfolios can be subject to a variety of other risks, including inflation. There is a risk of equity as well as liquidity risk and currency risk that investors have be aware of and perhaps, protect themselves against.

Luckily, Gold is able to mitigate these risks as well. Portfolio studies of performance show that a small allocation to Gold