Many people invest to increase their wealth. In addition to building wealth, you can protect your money from inflation with the right investments. Indeed, some assets are considered inflation-proof, or at least, inflation-proof.
You want to protect your savings and investments against inflation. A dollar today buys much less than a dollar a hundred years ago. In fact, according to the Bureau of Labor Statistics, one dollar in 1921 offered purchasing power equivalent to just over $14 in 2021. Thus, silver generally loses value over time. Thirty years from now, the $1,000 hidden under your mattress could be worth less than $500 in today’s dollars.
Over time, production costs often increase and many resources become scarce as they are consumed. Population growth and economic development can also stimulate demand, potentially driving up prices. Meanwhile, as the money supply grows, individual dollars lose value.
As with many things in economics, supply and demand play a crucial role in inflation and help determine which assets might be inflation resistant.
Gold is often considered the paradigm of an inflation-resistant asset. For thousands of years, mankind has thirsted for gold. Besides its beautiful shine, gold is chemically inert. While iron rusts and silver tarnishes, gold remains largely the same for eons. Gold is also limited in supply. In fact, all of humanity’s gold supply could fit in less than four Olympic swimming pools. As a result, the price of an ounce of gold generally increases over time.
These days, some people are turning to bitcoin and cryptocurrencies to hedge against inflation. Why? Because the total supply of bitcoin is limited while production remains constantly slow. This contrasts with the dollar, as the US Federal Reserve can increase supply on a whim, reducing the value of individual dollars.
Real estate, including your own home, can be a hedge against inflation. The supply of land is fixed and houses generally appreciate over time. You can buy real estate investment trusts that give you coverage without a large upfront investment.