Hedge against Inflation.

What is a hedge against inflation. What does it exactly mean ? No better explanation than an extract from Google below ;

‘ An inflation hedge is an investment that is considered to protect the decreased purchasing power of a currency that results from the loss of its value due to rising prices either macro-economically or due to inflation.’

As money loses its purchasing power in the UK presently 10% loss per annum you need to buy something that returns more than 10% return or grows more than 10% currently per annum. That’s the hedge.

It’s not the guy in the photo who is cutting the hedge this morning but think of this garden hedge as the money and this gardener is trimming it down 10% each year. In 10 years you’ll be out of cash broke and you’ll have a clear view of all your other broke neighbors.

Ok so good so far so to do something you need to hedge the hedge and build something against it that goes up 10% higher each year. Historically that has been vehicles such as Houses , Gold , commodities as rarity adds value. Too much paper money in circulation becomes toilet paper in value terms think Weimar Republic. Too little bricks and mortar creates scarcity and value added. That essentially is what the UK economy has been built upon due largely to the strict draconian Planning Policies adopted in UK. Flood the market with available land and house prices will fall. The stakeholder Builders don’t want that.

Meantime Gold mines are even rarer and real gold as opposed to gold certificates even rarer.Inflation can be controlled by increasing the cost of money but too much and this will affect values for affordability of mortgages rears its ugly head. Reducing the money supply is another way but post Great Financial Crash 2009 that policy went out of the window. Inflation is too much money chasing too few goods , deflation is too many produced goods looking for a buyer.

Essentially we exist at all times between the two that’s called balance though the biggest enemy is often average. The stock markets like the housing markets are in flatline presently and there is little direction. The guy on the hedge has climbed down one off the ladders and gone for a tea break. So what happens next ? That my friends is the subject of an upcoming blog but I know that it is exciting. Rose bushes have to be cut back to grow and we can learn an awful lot in the Garden where it all started.

Isn’t that where it all started Adam or should I ask Eve ?