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Money Matters
As the dollar weakens, commodities can protect your investments. NY1 Money Matters reporter Lindley Pless filed the following report.
Gross domestic product has been almost stagnant. Consumer price inflation has been on the rise, and existing home sales have been dropping month after month.
For the average investor, these numbers mean you should be protecting your investments, especially if inflation increases and there is a loss of purchasing power with a weak dollar.
The Labor Department defines inflation as the overall general upward price movement of goods and services in an economy. In layman's terms, it’s how things like milk, bread, gasoline, and home building materials get more expensive over time.
“Inflation is what I call a silent financial killer. You really don't feel it, but it is happening year in and year out,” said Brett Wilder, a financial planner.
Today it costs $1.08 to buy what you would have spent $1.00 on in 2005. A gallon of milk cost $3.30 in January of 2005 and $3.87 in January of 2008. Cost of living increases every year, and people are not aware of how devastating that can be to wealth accumulation.
So as inflation sets in, how can you protect your portfolio?
“In this kind of environment, the key thing to do is buy as much stuff – real hard assets such as real estate, gold, other types of commodities – because they'll appreciate with the rise of inflation,” said Thomas Winmill, the manager of the Midas Fund, a $260 million precious metal and resource fund. For a three-year period, the fund is up more than 40 percent.
“You can borrow money to hold them and you get that differential. This is a negative interest rate environment, and good for hard assets,” said Winmill.
Buying actual gold bars, now priced at more than $900 an ounce, may not be ideal for the average investor. Winmill says there are other better ways to invest in gold.
“At Midas Fund we don't own the gold bullion, but we own mining companies that dig ore, gold ore out of the ground and then sell it for processing,” said Winmill.
So as inflationary concerns continue to rise, the pros say buying companies that produce or work with commodities like gold, oil, cattle or corn may be a way to buy into rising prices and make money in the long run.
- Lindley Pless
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Prospectus
