What is inflation and why does it matter for investments?

Inflation is the general increase in prices and fall in the purchasing power of money over time. When inflation rises, each dollar buys less than it did before. This matters for investments because it can erode the real returns on your money. For example, if your investment returns 5% but inflation is 4%, your real gain is only 1%. Inflation hedge investments like those in this basket are specifically chosen because they tend to maintain or increase their value during inflationary periods.

Why are precious metals considered inflation hedges?

Precious metals like gold and silver have been valued for thousands of years and have a limited supply. Unlike paper currency, which governments can print more of (potentially causing inflation), the supply of precious metals grows only slowly through mining. This limited supply, combined with consistent demand, helps precious metals maintain purchasing power when currencies weaken. Companies that mine these metals often see their stock values increase with the price of the metals they produce.

What makes infrastructure investments good during inflation?

Infrastructure companies own essential physical assets like roads, bridges, utilities, and communication networks. These assets have intrinsic value and provide services that people need regardless of economic conditions. Many infrastructure businesses can raise their prices with inflation through contractual agreements or regulated pricing models. Additionally, the replacement cost of these physical assets typically increases during inflation, enhancing their underlying value.

What is a dividend yield and how does it relate to inflation protection?

Dividend yield is the annual dividend payment as a percentage of a stock's current price. For example, if a $100 stock pays $4 in annual dividends, it has a 4% yield. During inflation, companies that can increase their dividends may help investors maintain purchasing power. Many commodity producers and infrastructure companies in this basket have histories of paying dividends that grow over time, providing both income and potential inflation protection.

What's the difference between royalty companies and miners in this basket?

Mining companies like NEM or PAAS directly operate mines to extract precious metals, assuming operational costs and risks but potentially higher rewards. Royalty companies like RGLD don't operate mines themselves but instead provide financing to miners in exchange for a percentage of future production or revenue. Royalty companies typically offer lower risk with more diversified exposure to metal prices, while miners offer more direct leverage to rising commodity prices. This basket includes both types to provide balanced exposure to precious metals.

15 handpicked stocks

Inflation Hedge Basket

Looking to protect your money from rising prices? This collection features companies that own real, physical assets from gold mines to global infrastructure. Professional analysts have selected these stocks specifically for their ability to maintain and potentially increase in value during inflationary periods.

Han Tan | Market Analyst

Updated 2 days ago | Published at juin 17