HOW TO PROTECT YOURSELF FROM INFLATION

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We first have to ask ourselves what is going on in the world today: the answer is simple: Central banks have pushed so much liquidity into the system that everything looks great as technology plus huge investments thanks to low borrowing costs kept prices down.

This tells me two things, the world can continue as is or Central banks can lose control and we could see huge inflation. As I don’t have a crystal ball the best thing to do is to be hedged against such a situation in order to sleep well.
Something also very important to understand is that inflation is much more related to your personal finances than your portfolio. As we have seen in the Chapter 2 analysis of the intelligent investor, stocks don’t really offer immediate protection form inflation so we have to be protected from a personal standpoint.

Life and inflation

The average inflation rate in Europe was 1.72% over the last 20 years while the average in the U.S. was a bit higher where the cumulative inflation rate was 55%.

What is possible is that in the next 20 years we continue to have low inflation but it is also possible that we have high inflation. I don’t know what will happen but I like to be protected.

As I said inflation is about our personal finances, let’s look at who is protected and who isn’t.