How To Protect Yourself From Inflation and Rising Interest Rates

Post on: 2 Июнь, 2015 No Comment

How To Protect Yourself From Inflation and Rising Interest Rates

April 27th, 2010 by Skip McGrath

Yesterday I posted an article by Mike Larsen that makes a strong case that inflation and interest rates will begin rising soon. How soon? –I don’t know. If I had to guess they will start creeping up by the middle of May or early June. But by July/August they should start to accelerate. If you are not sure this will occur be sure and scroll

So you may want to start taking action now.

Before I get started I want to state clearly that I am not a registered investment advisor and I am just giving you my opinion based on over 35 years of investment experience. So please do your own research before acting on any of my recommendations. So with that caveat, lets get started.

7 Ways to Protect Yourself From Inflation and Rising Interest Rates:

Lock in low interest rates on any debt you have. For example, if you have balances on credit cards, look into replacing that debt with a fixed-rate debt such as a bank loan, Credit Union loan or a fixed-rate second mortgage.
If you have a first or second mortgage with a variable interest rate, re-finance to a fixed rate NOW! As inflation grows, interest rates will climb. The last time this happened during the Carter Administration and the first year of the Regan Administration inflation hit 19% and the prime rate rose to 16%.
Sell any interest earning investments such as long-term bonds where the price of the asset falls as interest rates rise. For example, if interest rates on long-term treasury bonds rise, the underlying value of the bond falls. Should interest rates rise as high as 7 to 8% or more, you can buy the bonds back at that time and lock in those interest rates for the long term. In the meantime, you can keep your money is 90-day T-Bills or Government TIPS bonds that rise with inflation.
Take a hard look at investing in Gold and/or Silver. The huge deficits and continued government borrowing will continue the long-term fall of the US Dollar. Also oil, which is priced in dollars, has already risen from a low of $38 to over $85. I have seen forecasts by reliable research firms that predict that oil will rise to well over $125 by this Fall. Both of those events will cause the dollar to fall and Gold and Silver to rise. Don’t bet the farm on this. Personally I have kept about 10% of my investment in gold over the past 20 years, but have recently increased it to 15%.

You can of course buy physical gold and silver. I believe that everyone should have some of that. There are lots of places that advertise on radio and TV that sell Gold, but I prefer to buy from local coin dealers. The prices are the same and since I walk in and pay cash, the transaction is anonymous. If the government ever decides to outlaw holding gold as happened in the Roosevelt Administration, they can subpoena all of those gold firms for a list of their customers.

The other way to buy gold and silver is to buy stocks in gold and silver mining companies, but that can be risky as any company can fail and a lot of those mining companies are in unstable countries where they could be taken over like is happening in Venezuela. So instead you can buy an Exchange Traded Fund that holds stock in a group of gold miners so your investment is diversified. The most popular ETF for gold miners is symbol GDX.

There are also ETFs that own physical gold and silver. These are SLV and GLD. Both of those ETFs track the daily price of gold and silver.

Another way to play this is to short US Treasury Bonds. The ETF, TBT, is an inverse leveraged ETF. As interest rates rise, the price of bonds fall. As bonds fall, the price of TBT goes up by twice the amount. Warning this type of ETF can be both volatile and risky.

If you have been thinking about putting your money into an annuity, you may want to wait. Typically you can lock in higher returns from annuities when rates are higher.

Start storing food. If you have a freezer now is the time to buy meat. And if you have a fruit cellar be sure and can some fruits and beans this year.

Food prices are going up and should continue to rise throughout the rest of this year. Take a look at the price chart of Live Cattle. Cattle prices fell during 2009 and began rising last December and have risen 18% so far this year. Hog and chicken prices are also rising by similar amounts. Grains are still low but are forecast to rise as we get into the summer growing season.

So now is the perfect time to start storing meat, flour and grains. If you don’t have a freezer or the room, many communities have meat clubs where you buy meat in bulk and they store it for you.

So there are my 7 tips for protecting yourself in a period of rising inflation and interests rates. Remember to do your own research before taking any action on these, but I urge you to do that research now.

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