What can a person do to protect their wealth against inflation? Suppose they live in a country where the rate of inflation is very high.
pohnpei397 | Certified Educator
There are a number of things that can be done to try to protect one’s wealth from inflation. They include:
- Investing in countries other than your own. If your country has a high rate of inflation, you might consider investing in countries that do not historically have such high rates. This is likely to allow you to get a good return on investment without having to lose a good deal of your nominal wealth to inflation.
- Real estate. People often buy tangible assets as a hedge against inflation. The idea here is that real estate has a true and enduring value that is intrinsic to it and that cannot be undermined in the long term. Of course, if you buy when the market is inflated, you may lose. However, real estate is an asset that is less likely to lose value in the long term.
- Gold. This is for similar reasons to real estate. Gold has an intrinsic value that does not go away. Like real estate, however, it is not immune from losses as gold today is not worth as much in constant dollars as it was 30+ years ago.
- Inflation-indexed securities. Some governments, like that of the United States, do sell some securities that guarantee a certain rate of return above the rate of inflation.
- All of these are ways that a person can protect their wealth from inflation. None of these, however, is a guaranteed way to avoid losing wealth.