Protecting Against Inflation

As always, let's get straight to the point.

While there are specific assets designed to protect against inflation, and every country has them, these are more about preservation rather than outperforming inflation. In other words, you lock in your money (by investing), and at the end of a set period—say 6 months or 1 year—you have a little more money, theoretically allowing you to buy the same amount of goods... but you didn’t experience any “real gain.”

What are these assets? For example, in the U.S., we have TIPS (Treasury Inflation-Protected Securities), in Argentina, there are UVA time deposits, and similar instruments exist in other countries.

However, there’s also an opportunity cost involved—by choosing these inflation-protected assets, you might miss out on allocating that capital to another asset that could yield a higher return than these inflation-protection instruments.

So how do we protect ourselves from inflation?

Here we need to take a more macro approach... If there’s money printing and therefore inflation, what scarce assets tend to perform well? It’s a list that is fairly simple to put together from the start:

• Gold

• Silver

• BTC

And some less intuitive ones:

• Real Estate

• Agricultural products and farmland assets

Let’s quickly dive into each one.

GOLD AND SILVER

Commodities, particularly gold, are often considered inflation hedges and tend to perform well during periods of high inflation. Some interesting options include: GLD (SPDR Gold Trust) for gold and SLV (iShares Silver Trust) for silver. For example, since the start of the year (YTD), nearly 5 months in, the returns have been:

• GLD: 12.9%

• SLV: 13.8%

With inflation from March 2024 compared to March 2023 at 3.4%, we can see that these returns are well above inflation.

BITCOIN

In the case of Bitcoin, although it often behaves like any other market asset, it is intrinsically anti-inflationary. Due to its scarcity, its very nature is anti-inflationary, and as long as there is demand, it can present itself as a good alternative.

BTC YTD Performance (5 months):

• BTC 63%

REAL ESTATE

Real estate, in this case, refers to a limited-supply asset amidst massive immigration, which not only generates more rental income but, more specifically, short-term rental properties can adjust rents even faster against inflation, as the price for new rentals is negotiated more frequently.

One option I like quite a bit is REITs. By regulation, they are required to pay out 90% of their taxable income as dividends to shareholders, meaning they don't have to pay corporate tax. This makes companies like ABR (Arbor Realty Trust) attractive, with a dividend yield of 13.72% and interesting appreciation, moving within a range of $10 to $17 over the past year.

This combination of good returns at relatively low risk is quite appealing.

Agriculture Fund

Another interesting performer is the DBA (Invesco Agriculture Fund), which can be a good option.

With rising fertilizer prices, droughts, and compromised farmland in Ukraine, agriculture funds could perform well against inflation.

In summary, what I’ve done here is break down the issue of inflation-hedging assets, not only from a logical perspective but also by quickly showing the reasons why these assets can outperform inflation, unlike TIPS, for example, which merely protect you without outperforming. Of course, this is always my personal opinion, and everyone should do their own analysis. But if you’re interested in this type of insight and data, here’s the link to subscribe to the newsletter: