Beware Of These Faulty “Inflation Protected” Investments

The Federal Reserve last week reiterated its commitment to an unprecedented inflation-raising campaign.

Specifically, the Fed aims to push the inflation rate above 2% for an extended period.

The risk for investors is that central bankers succeed in their mission to depreciate the currency more rapidly – perhaps even more rapidly than intended or acknowledged in the official (understated) inflation data.

Inflation is a corrosive force that eats away at the real value of savings and investments.

It is perhaps the biggest threat looming on the horizon for millions of retirees who have been steered into assets marketed as “conservative” – such as dollar-denominated money market accounts, bonds, and fixed annuities.

Investors who are savvy about the inflation threat know that low-yielding financial instruments are especially vulnerable to losing value in real terms. But those seeking protection from inflation can still run into trouble by venturing into flawed “inflation protected” assets.

Beware of the following:

Treasury Inflation Protected Securities (TIPS). Though they could fare relatively better than conventional fixed-rate bonds, TIPS are flawed. They are pegged to the federal government's self-serving Consumer Price Index gauge which tends to understate real-world consumer prices.

Foreign currencies. Assets denominated in foreign currencies may benefit from a decline in the U.S. dollar on foreign exchange markets. But foreign fiat currencies are no safe haven from inflation.

There are no truly sound national currencies out there. The fact that one is gaining against another over any given period doesn’t mean it’s not also depreciating in real terms.

Central banks around the world are engaged in competitive devaluation, and all fiat currencies have been falling against gold.

If one currency is strengthening against others at any given time, that doesn't mean it’s gaining purchasing power – it’s probably just performing less bad than the others.

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