Elon Musk.
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- Billionaire Tesla CEO Elon Musk has advised investors to go for homes or stocks when inflation is high.
- Gold and innovative real estate might also be good bets, and don’t forget “real assets”.
- Here are top ideas for hedges to protect your wealth against inflation from five asset managers.
Billionaire Elon Musk thinks it’s better to own physical things like houses, rather than US dollars, if you’re looking to protect your wealth when inflation is soaring.
—Elon Musk (@elonmusk) March 14, 2022
The Tesla CEO shared his advice just days after US inflation hit a 40-year high of 7.9% in February.
Markets are concerned about inflation, given its risks to economic growth, and about central banks trying to tame it by hiking interest rates. Naturally, investors are hunting for the assets that will maintain value best.
When inflation surges, it whittles away at the purchasing power of dollars, as it takes more to buy an item. If a dollar is worth less, then assets valued in dollars could likewise lose value.
Wall Street banks will say that stocks are the best assets out there. Goldman Sachs, for one, urges its clients stay invested in equities — mainly US stocks, though alongside a smattering from elsewhere.
“We have not once recommended clients underweight US equities,” Goldman says.
Given that, Insider turned to five asset managers to look beyond the “US stocks are great” box.
The shiny stuff
Gold and silver generally do well, and there are signs both metals could gain in coming years, according to David Morrison, senior market analyst at Trade Nation. But finding a way to invest is not straightforward.
“Buying and holding the physical is one way,” Morrison told Insider. “Although watch out on silver, as it attracts certain taxes which most forms of gold don’t.”
Morrison also suggested buying mining stocks — gold miners, silver miners, or even diversified miners.
Bonds that protect investors from crumbling purchasing power
Wedbush Securities’ Jazmin Gabriela Carpenter believes Treasury inflation-protected securities, or TIPS, are another good bet.
The worth of these bonds rises in tandem with inflation and decreases with deflation. Like conventional Treasuries, they are backed by the US government, but they are structured differently.
“They pay a fixed rate twice a year, which is applied to the adjusted principal,” Carpenter said, referring to the face value of the bond. “Like the principal, interest payments rise with inflation.”
Innovative real estate
One subsector of real estate could be attractive — industrial warehouses, according to Wealth Enhancement Group’s Randy Godsell.
These have benefited from the spread of e-commerce, the chief investment strategist noted. They should continue to provide stable income, even with higher inflation, in the near term.
“We think that private real-estate funds offer an attractive way to gain access to this durable sector, without the volatility of publicly traded REITs,” Godsell told Insider.
Seek out fast-growing companies
Growth stocks trump value stocks for KC Mathews, chief investment officer at UMB Bank.
Value stocks are those whose price appears cheap when their financial performance is examined. Their health is typically linked to the health of the economy and a higher level of interest rates, while growth stocks such as techs promise fast expansion.
Demand in value sectors tends not to be sensitive to inflation, Mathews said. But historically, growth has outperformed value by 50% in times of inflation over the last two decades.
Other investments
“Real assets” — such as projects for digital infrastructure and renewable energy — offer good inflation protection, Momentum Global Investment Management’s Richard Parfect told Insider.
Investors can find opportunities in real assets through funds that have come to market in the last year, he said. These invest in things like subsea internet cables, vital to internet coverage and 5G wireless, and so to the digital economy.
The portfolio manager mentioned specialist property in social housing, and more esoteric assets such as music royalties. Many of these offer either direct or indirect inflation linkage, he said.
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