Hedging Against Inflation..Protect Your Cash

Key Points

• Among all investment products, having Equity(Common Stock) in your portfolio has historically proven to be the greatest hedge against inflation.
• In addition equity has historically delivered superior returns relative to other investments at a higher level of shorter term risk.
• GenVest recommends that young investors have a higher allocation to equities versus bonds given the ability to take a long term view and grow personal wealth.

How Can Investing in Equity Protect My Wealth?

While investing in equity does hold more risk than bonds, it is important to note that the returns historically are higher so imagine it like this.

Inflation is running at about 2% annually over the last few years meaning your idle cash holds that much less value to purchase the items you like because you left the cash in a dusty savings account that rewards you with well to be honest not much.

By the way, inflation has historically been about 3.5% annually since they started tracking this metric and is subject to change. As of November 2022 it was hovering at about 8%. Yikes! You can either invest in stocks through the Mighty S&P or some nice cozy bonds.

The S&P 500 should average you about an 8% annual return over the course of the next ten years since they started tracking this metric in 1957. As for bonds (it depends on what type of bond but even if we are being nice) let’s just say 2%-5% for a Ten Year US Treasury in most instances.

This can fluctuate depending on various factors but we will just go with those numbers for now.

Conclusion

So basically where do you want your cash invested to allow you to have more purchasing power in the future? Genvest hopes it’s stocks, but again if bonds make you feel more secure please do not hold back because Your Dollar is Worth More Today than tomorrow.