When inflation starts to happen, assets like gold, silver and other materials do well. The National Inflation Association believes that silver will be one of the best investments for the coming decade. However, most advisors don’t recommend owning metal. They favor investing in the mining stocks of those metals. I agree and have seen it work for many of my clients.
Another strategy for offsetting inflation’s impact is purchasing commodity, energy and real estate mutual funds and ETFs, domestically and internationally. They do well because as inflation impacts the economy, these investments will rise. This allows you to at least keep pace with inflation.
Built-in inflation protection
When inflation rises, values of traditional bonds decline. Treasury inflation-protected securities adjust the principal of the bond to make up for the loss of purchasing power to inflation. Emerging-markets bonds also do well in an inflationary climate because their currencies increase when the value of our dollar declines.
The above products can be purchased in ETFs, mutual funds or variable insurance products. Expert management provides the knowledge and expertise we lack concerning these investments.
What about insurance products? Many people believe that inflation is the primary weakness of insurance products. That is true only if you use insurance products in a passive manner. Dividend-paying, cash-value life insurance policies have a wonderful ability to maintain buying power. Because dividends are based on current earnings, the insurance company can take advantage of investment opportunities that offset inflation. Tax deferral also helps offset the damage caused by inflation.
Annuities as inflation-beaters
Our industry provides guaranteed paychecks for life. Income annuities can be indexed to inflation. We must continue to help people grow their assets, but we must focus on finding ways to provide growth while protecting principal. Equity-indexed, fixed-interest annuities are the answer. In the next boom-and -bust financial cycle of the next decade, these annuities can provide growth and guarantee safety. Use them as part of a well-diversified financial plan.
Don’t forget fixed-interest, multi-year-guarantee annuities. By laddering maturities, you can reallocate money to higher interest rates as they occur. This method provides guaranteed safety.
Use these as a starting point in developing strategies that will help you to stand out as a premier advisor.