How to Invest for Hyperinflation
Original post by D. Laverne O'Neal of Demand Media
Hyperinflation is defined as inflation that has run amok, such that the value of a currency shrinks exponentially. Hyperinflation can occur when a country increases its money supply while its gross domestic product stagnates or shrinks. It can also occur in the aftermath of a war, when potential investors lose confidence in the stability of a currency. Investing strategies for coping with hyperinflation include investments in real estate, uranium, inflation-indexed securities and dividend-paying stocks.
Invest in stocks that pay dividends. Dividend-paying stocks allow you to receive a regular payout even as hyperinflation rages. Look for companies that have historically paid dividends to investors, regardless of economic conditions.
Buy Treasury Inflation-Protected Securities, or TIPS. Reuters financial columnist James Saft recommends buying TIPS as a hedge against hyperinflation. These securities are bonds that are indexed to inflation, so their principal value rises with inflation, even if it spirals out of control. The interest from the bonds also increases with the rate of inflation. Because of taxation and other factors, Saft cautions that "you have to buy and hold to maturity" to make investing in TIPS worthwhile during periods of hyperinflation.
Invest in uranium. CNBC sees uranium as a quality hedge against inflation, in part because the mineral is in short supply, which means the price of this commodity is likely to rise. Uranium is used in nuclear reactors to generate electricity. China, Russia and various emerging nations have announced plans to ramp up nuclear energy development, which means demand for uranium will increase. To invest in uranium, buy shares of companies that produce the mineral or holding companies that invest heavily in it.
Acquire a primary residence. Owning a home protects you from soaring rent in times of hyperinflation. Lock in a fixed-rate mortgage and no matter how much the value of your property increases, your mortgage payment will remain the same. Furthermore, once you've paid off the mortgage, your fixed expenditures will be much lower, as housing costs will include only taxes, insurance and maintenance. According to the Los Angeles Times, "average real estate prices do appear to rise over long periods and, in recent decades, faster than the rate of inflation."
- CNBC: Stock Market News: Uranium Is Hedge Against Inflation
- Los Angeles Times: Lesson 3 – Protect Against Inflation
About the Author
D. Laverne O'Neal, an Ivy League graduate, published her first article in 1997. A former theater, dance and music critic for such publications as the "Oakland Tribune" and Gannett Newspapers, she started her Web-writing career during the dot-com heyday. O'Neal also translates and edits French and Spanish. Her strongest interests are the performing arts, design, health, personal finance and personal growth.