What the Wealthy Are Doing to Beat Inflation
With practically every central bank around the world having the throttle fully open when it comes to monetary policy, investors with extra cash just lying around need to do something with it. While you could put this cash in a government bond or simply keep it in cash, these options aren’t going to help you beat the rate of inflation. Instead, investors should take a cue from the superrich and consider an investment strategy that includes hard assets.
As you may already know, an investment strategy that comprises hard assets includes traditional stores of wealth (such as gold and silver) and commodities (such as oil), as well as artwork and even cars.
While I advocate the traditional investment strategy of becoming a part owner in companies through equities, there are growing signs that even the superrich are becoming increasingly worried about having cash sitting idle and are looking at hard assets as part of their portfolio.
Just recently, a 1963 Ferrari “250 GTO” sold for $52.0 million! I like a nice car as much the next guy, but $52.0 million is a lot for one vehicle.
Obviously, the person buying it is not using it just to go grocery shopping; rather, it’s likely that the new owner is incorporating this item as part of their investment strategy to include hard assets (in this case, collectible cars).
To show you just how strong the market is for alternative hard assets by the extremely wealthy, a similar Ferrari 250 GTO sold last year for $35.0 million, which means this year’s sale is a 49% increase in price.
Of course, price appreciation in hard assets doesn’t end with cars, as the investment strategy by the superrich to exchange their cash for tangible items is increasing across the board.
The demand for hard assets in artwork and diamonds continues to grow. Next month, a 59.6-carat pink diamond will be up for auction, estimated to reach a new record of $60.0 million.
It seems that record after record is being broken for alternative hard assets around the world. The extremely wealthy are shifting their investment strategy away from cash and into hard assets that are tangible and unable to be manipulated. And individual investors may want to consider following their lead.
Of course, I’m not suggesting putting all of your cash into one single diamond or car, as that would add a great deal of risk to your investment strategy; rather, investors should look to add hard assets to their existing investment strategy to promote portfolio diversification, which minimizes risk.
When you aren’t getting paid enough to overcome inflation, this means you’re losing purchasing power (wealth) over time by having cash sitting idle in a bank account. Owning stocks is a great long-term investment strategy, of course, but adding alternative investments like hard assets can help diversify risk.
Until the Federal Reserve actually begins adjusting monetary policy, I think having part of one’s investment strategy in a variety of hard assets, including real estate, gold, platinum, palladium, silver, oil, and natural gas, along with stocks makes a whole lot of sense.
The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.