How to Protect Your Net Worth From Hyperinflation & Deflation

As economies struggle through hyperinflation and deflation, maintain your net worth through wisely shifting your assets.

Wealth maintenance can be just as important as wealth building, especially when the economy is in trouble. When the money supply is out of control because too much money is chasing too few goods, when cash confidence crashes, as in times of hyperinflation, or when prices fall during deflation because of a contraction of the money supply, it's time to go into maintenance mode. For anyone with a large number of assets, this means shifting your investments and placing your funds in assets that offer the best return without losing value.

Instructions

1. Buy stocks in companies that are somewhat resistant to inflation, such as companies that produce essential goods and services. Food producers are less likely to be affected by hyperinflation on the corporate side than producers of luxury merchandise or fad items.

2. Rid yourself of cash by purchasing items that are unlikely to lose their value or usefulness during hyperinflationary periods. Raw land tends to hold its value over time regardless of the inflation rate, as do precious metals. Any investment tied into a specific monetary value is a bad one during hyperinflation as the money quickly loses value before you can spend it.

3. Move your investments offshore to a region not experiencing hyperinflation as soon as the inflationary period begins. Convert your offshore holdings into the noninflationary currency and keep it overseas until the inflationary period ends.

4. Protect against deflation by moving your investment funds into guaranteed return items such as bonds. During periods of deflation, cash investments and stocks will typically offer lower rates of return in comparison to the bond market. Through lowering your cash and stock holdings while increasing your municipal, government and corporate bond holdings during the deflationary period, you switch your assets to those that provide a consistent and higher rate of return, maintaining your net worth.

5. Pay off any large debts, such as credit cards or home loans, at the start of the deflationary period. Those debts will gain in value as the economy slows, costing you more in real funds than before the deflationary period.

References

• Money Energy: How To Protect Your Wealth From Hyperinflation
• The Telegraph; Deflation: How to protect your portfolio; Emma Simon; March 2009