By Anthony Gilbert – Writer at http://www.realfx.com/blog/
Hyperinflation is a rapid increase in inflation where the prices rise so drastically that calling it inflation becomes meaningless. While there is no set percentage for hyperinflation, it is often used to describe price increases of 50% or more over a short period. The sharp increase is what separates hyperinflation from other types of inflation.
What Causes Hyperinflation?
Hyperinflation can occur when the government begins printing larger amounts of money to pay for spending. As the amount of money being printed increases, the prices of goods and services will increase. Typically the government would lower the supply of money to curb inflation, but when they continue to print more, there can be an imbalance in supply and demand of currency. Prices will then skyrocket, and currency will begin to lose its value. This results in hyperinflation. Hyperinflation can occur at any time but historically has often happened as results of war economies.
Where Can You Invest Your Money to Continue Growth During Hyperinflation?
If hyperinflation occurs, your printed money will have a significantly lower value than what you originally started with, and you could be at risk to lose a significant amount of wealth if your portfolio relies primarily on currency and its value. To prepare yourself for the event of hyperinflation and secure your financial situation to withstand a hyperinflation event, there are a few places to invest that could help to maintain and even improve your wealth.
As you invest money in real estate, you begin to build equity that can provide for a secure investment in the event of hyperinflation. As prices increase the value of property and real estate a will significantly increase, causing the resale value to inflate. Additionally, interest rates will start to change with inflation. If you have paid on your property for awhile and had a lot of equity, you could hold onto your property during the inflated market and will most likely generate a decent profit. If you choose not to sell and use the property as a rental, rental prices will increase significantly with hyperinflation, and your rental income can well exceed the costs to maintain the property creating a substantial amount of income.
When the value of currency becomes less and less, the value of hard assets such as gold and silver will significantly increase. The value of gold and silver often holds its value as an asset in almost any international market. During hyperinflation, the price of gold and hard assets will increase creating wealth in your portfolio. Historically, gold has been known to not only match the rates of hyperinflation but also often exceed it even in times of war and reconstruction such as was the case in Germany form 1919 to 1923 where the average price of gold doubled every one to two days.
Index and Mutual Funds
Mutual funds come from a group of funds selected from multiple investors to invest in securities, stocks, bonds, and money market accounts. An index fund is a mutual fund that is created to function on low operating costs, provide a broad market exposure, and to have a low portfolio turn around. These funds are guided by a particular set of rules that are required to be followed no matter the economic situation.
Both mutual and index funds are created to protect the investor’s money during significant swings in the economy by being lower risk. During episodes of hyperinflation, these type of funds not only survive but often gain during these periods. These funds tend to be diversified so where some areas may lose, others will gain to create overall growth for the investor.
To prepare for the event of hyperinflation, one of the best ways to plan is by ensuring that your wealth and investments are diversified not only in your stock portfolio but also by investing in other assets such as real estate, gold, and other hard assets.