Inflation hedge

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Inflation hedge is an investment with intrinsic value such as oil, natural gas, gold, farmland, and to a lesser degree commercial real estate. Typically most hard assets are an excellent inflation hedge.[1][2][3] In general, commodities/hard assets are negatively correlated to both stocks and bonds. In other words, when stocks and bonds decline, commodities tend to appreciate.[4][5] In addition, during periods of high inflation/negative real interest rates equities and bonds do poorly (see 20% total return over 11 years from 1970 to 1981 for the S&P 500[6] v. 1,100% increase in oil prices[7][8] and 550% increase in western Canada farmland prices during same period)[9][10][11] while commodities and other hard assets appreciate in value.

Farmland values in southern South America, for instance, dropped slightly in USD terms and remained stable in terms of EUR and other major currencies during the mid-2008 to mid-2009 global financial crisis[12]

See also[edit]

References[edit]

  1. ^ Commodity Prices and Inflation, What's the Connection? - http://mises.org/story/3018
  2. ^ Marotta Asset Management - http://www.emarotta.com/article.php?ID=234
  3. ^ Agcapita Farmland Investment Partnership - Farmland and Inflation http://www.farmlandinvestmentpartnership.com/pdfs/FIP%20Financial%20Characteristics.pdf
  4. ^ Hard Asset Investor - http://www.hardassetsinvestor.com/component/content/article/9/434.html
  5. ^ Fields of Gold - http://www.thestar.com/News/Ideas/article/475036
  6. ^ Yahoo Finance - http://finance.yahoo.com/q/hp?s=%5EGSPC
  7. ^ WTRG - http://www.wtrg.com/prices.htm
  8. ^ Petrocapita Income Trust (Oil Production Assets as an Inflation Hedge- http://www.petrocapita.com
  9. ^ Stats Canada
  10. ^ Agcapita Farmland Investment Partnership - S&P versus Farmland and Oil in the 1970s http://www.farmlandinvestmentpartnership.com/pdfs/Agcapita_Newsletter_-_July_18_2008.pdf
  11. ^ Alpha, Beta, and Commodities: Can a Commodities Investment be Both a High Risk-Adjusted Return Source and a Portfolio Hedge? http://www.hardassetsinvestor.com/component/content/article/34/50.html?Itemid=4
  12. ^ Farmland - hedge against inflation http://www.argentina-estancias.com/inflationhedge-farmland.htm

Category[edit]