In times like these, holding a large Portfolio of stocks is nerve-racking. The equity markets have reached new record highs, but the rationale for these price increases 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 potential for similar events today at the same time that Wall Street encourages retail investors to take on even more risk.

Investors with a prominent name like Ray Dalio and Mark Mobius are publicly stating that investors should be able to have 5-10 percent of their funds that they can invest that are held physically Gold. For instance, the Ray Dalio All Weather Portfolio as an illustration, has an 7.5% allocation to Gold.

These highly successful investors are recommending physical Gold as a way to protect themselves against the stock market , while noting the possibility of currency devaluations in the aftermath of massive pandemic related fiscal and monetary stimulus.

In this brief article we'll explore different strategies for protecting an investment portfolio against Inflation and stock market risk.

The way in which to hedge against rising prices

There are several items that are often referred to as in the category of 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 has positives and negatives that an investor has to consider.

Precious metals

The purchase and keeping of physical Gold or Silver can be a well-established strategy for protecting yourself from Inflation. Metals that are precious are also an effective option to diversify an Investment portfolio and hedge against stock market risk.

In the Great Inflation of the 1970s (1963 until 1980) Gold gained 1600% in price and Silver rose 2700%. Investors with a sense of direction could buy Silver for $1.29 as well as the Gold for $33 an ounce in 1963. In the year 1980, these smart investors could make a profit from their investments at $50 or $800 per one ounce.

The most effective method of investing into Silver and Gold is to get personal ownership of those Precious metals and save them locally.

It is also possible to be exposed to the metals by investing in ETFs or Gold Trusts (e.g., GLD) and silver Trusts (e.g. SLV) and certificates program (e.g., Perth Mint).

Investors with tax-advantaged retirement savings can invest in physical Precious metals with those funds by opening a self-directed Gold IRA. Tax-free and tax-deferred Retirement accounts are able to be transferred into Gold IRAs.

Commodities

Commodities can be considered real asset such as orange juice and steel that is rolled. In times of inflation, prices for real goods tend to increase.

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

Hard commodities need to be mined or drilled , and this is the case for precious metals including aluminum, copper natural gas, crude oil and more.

Soft commodities can be found in the ground or are walked over it with four hooves. Wheat, corn live hogs, corn, and feeder cattle are all examples that are soft commodities.

ETFs allow investors to invest in both soft commodities.

Futures on commodities are not advised due to the risk of assignment. Futures on commodities are an opportunity to hedge stock prices however, they carry a high level of risk.

REIT stands for Real Estate Investment Trust (REIT)

REITs are investment vehicles that hold pools of income-producing real Estate. Inflation is a force that pushes both the cost of rental and property values higher.

Investors buy individual shares of REITs to get exposure towards Real Estate without taking on the burden of locating, financing, and operating the properties the properties.

Residential REITs focus on housing units, single-family homes mobile homes, as well as student housing. Commercial REITs focus on retail stores, office buildings, hotels, and other kinds of business properties http://chancecyvq887.wpsuo.com/is-tech-making-gold-as-a-hedge-against-stock-market-better-or-worse that generate income.

A small percentage of REITs are focused on the holding of mortgage debt (Mortgage REIT) however the majority of REITs concentrate on the holding of income-generating properties (Equity REIT).

Treasury Inflation Protected Securities (TIPS)

TIPS, or Treasury Inflation Protected Securities, offer the security of an Treasury bond with the assurance that the purchaser will receive at least their original Investment back.

The principal amount of the TIPS bond will be adjusted to match the CPI (Consumer Price Index) over the duration that the bond is in force. The annual coupon payment is based on the current principal value of the bond so the investor gets an Inflation-adjusted payout on their TIPS.

For an example, consider an investor who owns $5,000 worth of TIPS with a 5-year term with a 1% coupon rate. If Inflation (as measured by CPI) is 4%, then the bond's value CPI) is 4.4%, the $15,000 worth of bonds are adjusted upwards 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 entire year.

Note that the original investment (the primary of the bond) is adjusted to reflect inflation in this case, but the investor has locked themselves into a 1%-interest rate vehicle in an environment in which higher coupon rates are likely to be available.

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

The best way to dodge against rising prices

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 hedge in contrast to rising cost of living

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

The price of an gentleman’s dress is used as an example of Gold acting as an insurance against Inflation.

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

Fast-forward to today and similar manaEUR(tm)s suit will cost between $1500 and $2000. Gold being sold for approximately 1800 dollars an ounce.

That's 100 years where one ounce of Gold has protected its owner from the destruction of Inflation.

How to get into Gold

There are a number of options for you to make an investment in Gold. As we have already mentioned the best Gold Investment involves purchasing the physical metal and keeping it in a location that has ready access to it.

Once the foundation is set 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

The Physical Gold Trusts, such as GLD (SPDR Gold Shares Trust) are deceptive because they give investors the appearance of owning physical Gold but all an investor really owns are shares in a securities that is (supposedly) connected in some manner in some way to the physical Gold.

It is important to recognize the fact that Gold Trusts are not securities, but Gold itself. The Trusts are derivatives from physical Gold however they do not give an investor any ownership stake in actual metal.

Gold Trust shares can supposedly be redeemed for physical metal, but only well-funded investors are in a position to redeem them.

The Sprott Physical Gold Trust (PHYS) demands investors to redeem shares in 400 oz increments. With Gold at $1780 an ounce, this means an investor will require $712,000 worth of PHYS before it is possible to take delivery of actual gold.

GLD which is which is the SPDR Gold Shares Trust, has an an even more stringent threshold for receiving physical Gold.

Investors who are qualified can redeem up to 100,000 GLD shares at a date and time, and can request delivery of physical Gold. at 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 offer investors a way to build an Gold stock market hedge using the tax-advantaged retirement money.

Unless an investor is prepared to pay the penalty of 10% for early withdrawal of tax-deferred and tax-exempt funds (401K, 403b Traditional IRA, etc. ) The money is essentially stuck in some kind of IRS-approved investment vehicle up to the age of 59 and 1/2 .

Gold IRAs fall into the category of Investments that are approved and allow investors to gain the protection and security that comes with physical Gold ownership, without paying penalties or taxes in the process.

Final thoughts

In this article, we've focused on using Gold to hedge against stock market risk due to Inflation.

Stock Portfolios are subject to a variety of other risks, including Inflation. There is a risk of equity as well as liquidity risk and currency risk, which investors need be aware of and, potentially, to take precautions against.

Luckily, Gold