There’s a lot of debate about the best ways to hedge against inflation. This results from the consensus view that future policies will do nothing but stoke it. Putting aside the problem that consensus views are often wrong, it’s usually a bad idea to pursue faddish, reactive approaches to macroeconomic predictions.
Pundits are full of new advice—much of it fueled by Wall Street marketing teams—to park money in “inflation-hedged” ETFs, speculate in crypto, buy gold, or dabble in derivatives. As Warren Buffett would tell you, not one of these is the best way to prepare yourself for inflationary times. Buffett has been lecturing on inflation in his shareholder letters since the 1960s and his strategy has never changed (much to the advantage of his shareholders). His advice was, and is: buy stocks in companies that have pricing power. In other words, companies that can pass their price increases along to consumers. As he’s explained many times, there’s nothing like a business with a defensible economic moat when money is losing value.
Yes, gold (or digital gold) has its day in the sun when prices spike. Yes, derivatives can pay off on all sorts of inflationary outcomes (if the counterparty is solvent enough to pay—a big if). Yes, there is all manner of Wall Street gimmickry coming down the pike (all of it eager for your funds). But none of that is as effective over the long-term as a good old-fashioned business that makes money the old-fashioned way.
So ignore the fads, the ads, and the bad ideas. Stocks have the best return of any asset class over time. Stocks of companies with pricing power have even better returns. No doubt we are due for a reckoning in stock prices, but that just provides a perfect time to increase allocations. As we’ve seen time and time again, every setback in the market leads to new opportunities. The key is to remain an investor, not a speculator.
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