SMART MONEY : Prepare for High Inflation
(Mon, 21 Sept 2020). Investors like Warren Buffett and Ray Dalio are tweaking their portfolios to battle high inflation. You should consider following their lead.
Legendary investor Warren Buffett and Bridgewater Associates founder Ray Dalio are hedging against inflation. More stimulus packages will add to the national debt; as the Federal Reserve steps in to monetize the debt by printing more money, inflation will rise rapidly. The time is ripe for retail investors to follow Buffett and Dalio’s lead and brace themselves for rapidly rising prices. Recently, Warren Buffett dumped U.S. banks and gained exposure to gold in the form of Barrick Gold. That was followed by overseas investments in Japanese companies with various businesses, including mining and energy.
It looks like the Oracle of Omaha is preparing for higher inflation as the dollar declines.
Ray Dalio Follows Buffett’s Lead
Ray Dalio, the founder of hedge fund giant Bridgewater Associates, echoes Buffett’s sentiments. It was reported earlier this month that Bridgewater Associates no longer considers conventional bonds a hedge against inflation. Bridgewater has tweaked its all-weather portfolio by dumping bonds and moving into gold.
Own Hard Assets to Hedge Against Inflation
While these legendary investors brace themselves for an inflationary scenario, the general populace can as well. Gold and silver are the most famous hedges against inflation, but owning property can pay off in the long term. Real estate is one of the best hedges against inflation.
If you consider recent events, rapidly rising prices aren’t very far away. For example, the U.S. government was forced to bail out the entire population as the pandemic-induced shutdown caused massive job losses and bankruptcies.
The Coronavirus Aid, Relief and Economic Security (CARES) Act alone adds $1.8 trillion to the deficit. In truth, this money was created out of thin air. The Federal Reserve funded this bill by buying government-issued bonds. Once again, the Fed had to resort to printing money, which it did recklessly. It turned out that the CARES act wasn’t enough, and there could be more stimulus on the way. It looks like Nancy Pelosi will go to all lengths to ensure more fiscal stimulus.
As the Federal Reserve keeps buying government debt with printed money, inflation will take off along with the national debt. As a result, asset prices will rise, and the dollar will lose value. Besides holding gold or silver, owning land or property would be a great way to weather the storm because any idle cash will continue losing purchasing power.
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