What is hyper inflation? How can you protect your investments from inflation?

Hyperinflation is the term given to describe inflation that is spiraling out of control. Where prices are rising very quickly whilst the value of the currency of the country is falling. During less turbulent times reports on inflation are made yearly but when hyperinflation takes over it is reported on a period as little as one month.

There is much discussion on the causes of hyperinflation but it becomes most noticeable when there is a large and sudden increase in the quantity of money available but where there is no corresponding increase in growth either by output of product or services. This creates a lack of balance and confidence is lost in the currency. Governments often print large amounts of money in an attempt to stimulate the economy, however this can have an adverse effect when devaluation of the currency is happening faster that the rate at which the money is being printed. Hyperinflation has in the past commonly been related to paper money, as it is easier to print money by either reprinting old notes or by altering the printing plates.

Hyperinflation totally devalues savings both public and private. The economy of the country is distorted and nobody wants to invest there. Extreme remedial measures have to be taken by the governing body to try and solve the problems. These remedial measures vary from drastically cutting government expenditure to changing the basis of the currency. Often countries have resorted to using a foreign currency in an attempt to stabilize their economies.

In the past when inflation and in particular hyperinflation has become a problem investors have turned to precious metals and especially gold. Investors also look towards investing in real estate and commodities in difficult times.

TIPS, which are bonds issued by the US government and which have some protection against inflation are also worth considering in inflationary times. Their redemption value is related to the consumer price index.

However, if hyperinflation really takes off your best bet is gold bullion or coinage. Although it is expensive to accommodate gold and it will need to be insured, the price of gold will rise dramatically if hyperinflation becomes a major problem. When the price of gold rises then also the income for the gold mines rises and this in turn can help their stock price.

So it may be worth considering adding a mining company to your portfolio if you suspect hyperinflation is going to become a major concern.


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