At times like the present when you have a substantial portfolio of stocks can be nerve-wracking. The markets for equity have been making new all-time highs but the economic justification for the soaring prices is a bit shaky.

Old-timers who managed funds in the midst of Black Monday (1987) and the Dot-com bubble (1995-2000) warn about the potential for similar events today at the same time that Wall Street encourages retail investors to take on even more risk.

Famous investors such as Ray Dalio and Mark Mobius have publicly stated that investors should be able to have 5-10 percent of their investment funds that are held physically Gold. For instance, the Ray Dalio All Weather Portfolio for an illustration, has the 7.5 percent allocation to gold.

The highly successful investors are suggesting physical Gold as a hedge against the stock market while noting the possibility of currency devaluations in the aftermath of massive pandemic related monetary and fiscal stimulus.

In this brief article we'll look at different strategies for protecting an Investment Portfolio against both inflation risk and the stock market.

How to dodge against Inflation

There are several assets that are commonly considered inflation hedges:

Precious metals (Silver particularly)

Commodities

Real estate investment trusts (REIT)

Treasury Inflation Protected Securities (TIPS)

As with all possible Investments Each class of asset has advantages and disadvantages that an investor must consider.

Precious metals

Holding and purchasing physically Gold as well as Silver are a time-tested method for protecting yourself from Inflation. Metals that are precious are also an excellent way to diversify an investment portfolio and hedge against risk in the stock market.

In the Great Inflation of the 1970s (1963 until 1980) Gold rose 1600 per cent and Silver soared 2700 percent. Investors with a sense of direction could buy Silver for $1.29 or gold for 35 cents an ounce in 1963. In the year 1980, these smart investors could earn a profit on their Investments at $50 and $800 per an ounce.

The most effective method of investing to invest in Silver or Gold is to own the Precious metals and save them locally.

There is also the possibility to get exposure to the metals by investing in ETFs, Trusts (e.g., GLD), Gold Trusts (e.g. GLD, GLD) as well as SLV Trusts, Silver Trusts (e.g. SLV, for instance), and certificate programs (e.g., Perth Mint).

Investors who have retirement savings that are tax-deductible can purchase physical Precious metals with those funds by opening an auto-directed Gold IRA. Tax-free and tax-deferred Retirement accounts are able to be transferred to Gold IRAs.

Commodities

Commodities represent real investments like orange juice and rolled steel. In times of inflation, prices for real commodities tend to rise.

From an Investment standpoint, there are two kinds of commodities you need to keep in mind: hard and soft.

Hard commodities need to be mined or dug and this is the case for precious metals, copper, aluminum crude oil, natural gas, and so on.

Soft commodities are cultivated in the ground or walk across it with four hooves. Corn, wheat, live hogs, and feeder cattle are examples of the soft commodity.

ETFs allow investors to invest in both soft commodities.

Futures on commodities aren't recommended because of assignment risk. Options on commodity futures are an option to hedge your stock however, they carry an extremely high risk.

Real estate investment trust (REIT)

REITs are Investment vehicles that have funds of income-generating Real Estate. Inflation tends to push both rental rates and property prices higher.

Investors purchase individual shares of REITs in order to be exposed to Real Estate without taking on the burden of finding the properties, financing them, or operating the properties the properties.

Residential REITs are specialized in houses that are single-family, apartments, mobile homes, and student housing. Commercial REITs concentrate on retail stores, office buildings hotels, and other kinds of income-producing business property.

A small proportion of REITs focus on the holding of mortgage debt (Mortgage REIT) while the majority of REITs focus on holding income-generating properties (Equity REIT).

Treasury Inflation Protected Securities (TIPS)

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

The principal value of the TIPS bond is adjusted in line with that of the CPI (Consumer Price Index) throughout the term of the bond. Annual coupon payments are calculated on the principal amount of the bond, so the investor receives an inflation-adjusted amount on their TIPS.

As an illustration, imagine an investor who has $15,000 worth of 5-year TIPS that have the 1% coupon rate. If Inflation (as determined using CPI) is 4%, then the bond's value CPI) is 4.4% then the value of the bonds is adjusted upwards to $15,600. The bond's coupon payment is calculated using the adjusted principal value, so the buyer receives $156 in interest for the duration of the year.

It is important to note that the investor's initial investment (the primary of the bond) is being Inflation-adjusted in this instance, however the investor is locked into a 1% interest rate instrument in an environment where higher coupon rates are likely to be offered.

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

The way in which to hedge 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 skirt in contrast to Inflation

Gold is seen as a security against Inflation due to the fact that the cost of Gold tends to increase as the purchasing ability of the currency which it is priced diminishes.

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

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

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

It's been 100 years since just one ounce Gold has protected its owner from the devastation of Inflation.

Just how to buy Gold

There are a number of ways for you to make an investment in Gold. Like we said, the ideal Gold Investment involves purchasing the physical metal and storing it somewhere that you have the ability to access it.

Once the foundation has been laid There are a variety of options to put your money into Gold:

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

Mining stocks, 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 https://sites.google.com/view/registeredinvestmentadvisor/precious-metals Shares Trust) are deceptive since they offer investors the illusion of owning physical Gold however all the investor really owns are shares in a securities which is (supposedly) tied in some way with physical Gold.

It is vital to realize the fact that Gold Trusts are securities, not Gold itself. These are physical derivatives Gold but they don't provide an buyer any ownership interest in the actual metal.

Shares of the Gold Trusts can be claimed to be redeemable for physical metal, but only well-funded investors can redeem them.

The Sprott Physical Gold Trust (PHYS) demands that investors redeem their shares in 400 oz increments. With gold at around $1780 an ounce, that means an investor needs $712,000 worth of PHYS before it's feasible to receive the actual metal.

GLD The GLD, also known as which is the SPDR Gold Shares Trust, has an even greater threshold for receiving physical Gold.

Investors who have been approved to redeem up to 100,000 GLD shares at a time and request delivery of Gold in physical form. For today’s price (01/07/2022) it is an Investment of approximately $16.8 million US dollars.

Self-directed Precious metals IRA

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

If an investor is prepared to pay the 10% penalty for the early withdraw of their tax-deferred , tax-exempt money (401K, 403b or traditional IRA or traditional IRA, etc. ) The money is effectively locked up in some form of IRS-approved investment vehicle up to the age of 59 1/2 .

Gold IRAs fall in this category of approved investments and permit investors to enjoy the security and protection of physical Gold ownership, without paying taxes or penalties as part of the process.

Conclusions

In this article, we've focused on using Gold to hedge against the stock market risks caused by inflation.

Stock Portfolios are exposed to several other risks besides inflation. There is equity risk and liquidity risk as well as currency risk that investors have be aware of and perhaps, hedge against.

Luckily,