How to protect yourself from hyperinflation

And another question from the FB page. Jane is asking ‘with all this money printing that's been happening already, how can we make sure that we are protected from inflation or even worse – hyperinflation?’

And we will be presenting a couple of points to help you guys be protected from hyperinflation.

1. Put yourself close to the raw materials
Stay close to land or anything that could be transformed like lumber. If you look at lumber - you need to have land, you need to cut down the tree it goes through a process and is transformed into standardized logs. Then it goes into producing furniture, then into storage and then you buy the final product at your store.

If you look at it there's a lot of added value that goes through the process of just taking lumber and selling it. And if you can get closer to the lumber then hyperinflation will have less of an impact on you because what you will do essentially is you will cut your own trees down, you will buy the machinery to cut it and make it and you'll learn how to process.

You'll get it at a lot cheaper price and it's the same with everything other raw material. If you can get closer to land transform it, sell it - you can protect yourself from hyperinflation. It's an easier way to protect yourself. The same goes for agriculture, forest, oil commodities, etc.

2. Learn new skills in high demand
In case of hyperinflation - all service in high demand will increase quickly. For example, the maintenance on your car - an essential service that you need it's going to be in high demand, because if people need it, they'll pay a lot more for the service

And if you can learn how to do maintenance on your cars, oil change, construction on your house, etc. this will have a lot of value.

Let’s say that right now it costs about $100 an hour – car maintenance and $65 an hour for construction. In case of a high inflation or hyperinflation - this is going to go a lot higher, and if you learn how to transform your time into value, then you can protect yourself.

All those skills that you learn you essentially can transform into money then or you can do your own house, you can do your own floors, you can buy your own product and work with it.

All of these decrease the impact of hyperinflation when you learn something, when you transform, when you look at doing the oil change. It takes 15 minutes to do your old change and you save about 30 to 40 USD.

And you multiply that by 4 - that's a lot of value in a little bit of time, that you can transform your time into.

3. Use debt to your advantage
So, the  inflation devalues the value of currency. This is something that a lot of wealthy people utilize. They use debt to get richer, because if you're saving money then that currency is being devalued at a very fast rate.

And if you're investing and you're using debt and if you can have long-term fixed debts, you could use that debt and use inflation to pay it off. But make sure that interest rates are lower than inflation if inflation is at 5-10%, make sure that your interest cost is lower.

Hyperinflation destroys the value of the currency by like 50% a month. That’s the worst-case scenario, if you have $100000 in the bank what's going to happen it goes from 100k to 50k, than it goes down to 25k and then 12,5k in just a couple of months.

When you use debt, that inflation will devalue the value of that long-term debt.

4. Invest in hard assets
invest in real estate, invest in gold, in silver, invest in land and commodities.

The only thing you need to be careful with gold and silver right is the huge premium when you want to buy it. There's not a lot of people that are selling it and if they're selling it, they're selling it with a huge premium.

And you would need insurance to store that gold so if you have it at home. There's a lot of companies that insure all your assets at home.

So gold, silver and land commodities, real estate are the best to invest in when hyperinflation or even high inflation hits.

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So, those 4 points cover at least the basics on how to protect yourself from inflation or hyperinflation, let us know in the comments which one is your favorite.

How to invest in gold

A question from Facebook. Alan is asking ‘How to invest in gold?.’ Probably Alan has been scared from the money-printing machine and the risk of inflation. And the question is probably in the heads of thousands of our readers.

So, today we will write about the topic on gold investment and how to invest in gold as a beginner. In May 2021 gold has recently hit an 11-year high trading at above $1900 an ounce.

1. Investing in physical bullion
This is the actual metal, and it is going to be either in coin or bar form, typically if you're buying from a reputable source this can be anywhere from a quarter of an ounce all the way up to 400-ounce bricks.

If you can afford a 400-ounce brick of gold, that’s great and as of mid-Jun ’21 this would be at about $750 000.

Physical bullion is priced about 1-10% over spot price. Typically, it's 1-5% percent at any given time but in 2021, with endless money printing, a lot of people are not trusting fiat currency and there's a lot of demand for precious metals ,that's why the price is going up, and now the dealers whether it's a coin shop or an online broker are charging closer to 10$ over spot.

If you don't know what spot price is, say gold is trading at a thousand bucks an ounce for example. If you add 10% premium to that you're probably going to be getting into that gold for about 1100 an ounce.

You also need to buy quality, as the most popular types are coming from mints or they're coming from highly reputable sources. So, you should only be investing in investment grade gold that's the whole point of the investment. You're looking for purity of 99.5% or higher.

Many investors only buy 99.9% or higher, and the most popular ways to invest in this as we mentioned are coins, because of its divisibility and its ability to be stored very easily.

If you want to make a comparison to silver, it's trading at about 1 ounce of gold can buy you about 50 ounces of silver. It means 50-times more space if you are to store silver. So gold is highly divisible and takes less space than silver to store for the same amount of money invested.

You can buy from any reputable online or offline merchant, and check if they discretely and quickly ship to you.

2. Investing in gold ETFs and gold funds
They trade exactly as stocks and ETFs, and are referred as paper-gold. And there are 3 types of these ETFs.

The first kind are investing in a company or an ETF or mutual fund or an intermediary that invests in the physical bullion, as we mentioned in the previous point.

You can pull your money together; they hold the physical bullion, and they basically mimic the spot price.

The second way are investing in ETFs or funds that invest specifically in gold futures contracts. These are companies that do exactly what the first example does, except they're not holding the physical gold and they typically don't take delivery. They're literally just betting on the future price of gold.

The third option you have are gold mining companies, which have become very popular over the past few years. You would be investing in ETF that owns a bunch of gold mining companies and is based on how those gold mining companies do.

As an example, a popular gold-holding ETF is Spyder gold shares – GLD.  What they do is, as mentioned is they hold the physical bullions. So that ETF is typically going to mimic the spot price as mentioned.

You also have to take into consideration that the capital gains tax is going to be higher than other ETFs. So, when you dispose of your position, you would probably be paying a  higher tax potentially up to 28%.

And the 4th option is investing in gold futures or options, and it is for advanced traders only. This is for people that either do this as a living or have been doing it for many years, and they know exactly what they're doing.

3. PROs and CONs of investing in gold

3.1 PROs of investing in gold
Number one is, that gold is a hedge against inflation. With the money printer printing trillions and trillions of dollars, it’s not surprising  people lose their confidence in fiat currency. And they go back to something that is a historical store of value.

There's a finite amount of gold and it is considered hard money. This is all to battle decreased purchasing power ever since the US went off the gold standard in 1971.

Number two is all about portfolio diversification. Many people are investing in stuff linked to the financial markets, and gold is an opportunity to bring diversification to your portfolio, outside of just equities or stocks.

So, people need to provide true diversification and introduce that to their portfolio. And you can do that through precious metals such as gold.

And then final advantage is that it is easy to get started. All you need to do is literally go online, pick a reputable merchant and you can literally get started immediately.

ETFs and funds are just as easy as buying a stock so those gold ETF and funds if you already have an open brokerage account you can literally get started in investing in gold in a click of a button just by buying shares of those ETFs or funds.

3.2. The CONs of investing in gold
Number one is that it doesn't earn you anything. It is literally a pet rock, so if you invest in the physical bullion, you're going to throw it somewhere in a safe or at a bank deposit box, and it's literally just going to sit there.

There are no dividends no compound interest and no passive income coming from that investment. It is a double-edged sword, because it's not correlated, and it can't earn you passive income.

Number two is the cost for storage. If you keep it in the house safe – you might get robbed. And you may want to keep it at a bank and even then, although this is rare, what if there's a run on the bank, or what if that bank burns down. Of course, there's insurance, but the point is that the storage could become an issue and if you just want to keep the physical amount of gold in your premises you will also need to invest in some sort of security.

Number three – you are paying premium over spot and then you also have taxes as a collectible when you go to dispose of your position. Basically, the premium we mentioned is anywhere typically from 1-5%, and right now in this environment it's right around 10% and then this is also taxed as a collectible up to 28% of the value.

4. Final thoughts on gold investments
Gold is a  great way to diversify your portfolio. It is a good practice for everyone to have at least 5-10% of either gold or precious metals to make up their portfolio.

At times, silver could be also under-priced, but gold has typically considered a better store of value.

The point is to preserve wealth over years – that’s the idea of the precious metals.

And a well-diversified portfolio would be: a little bit of precious metals, a little bit of real estate assets and then you have your typical usual suspects - stocks and bonds. Then with the hype over crypto nowadays – people are calling it virtual gold, but we still have to see if it will stand the test of time.

Also, if the interest rates do not go up in any time in the near future, it means that the gold is extremely valuable asset.

Hopefully, we managed to answer the ‘How to invest in gold’ question, and to give you some hints how you can get yourself started and add gold and other precious metals to your portfolio.