Inflation—a cost of living increase—is one of the biggest dangers to your financial health. While we have some degree of control over what we spend on monthly expenses like food, rent, and utilities, we can’t control general increases in consumer prices that happen through no fault of our own (like in times of war or economic crisis). Unfortunately, inflation can have disastrous consequences for your retirement savings if you are unprepared—inflation erodes away your purchasing power as time goes on. Luckily, there are some ways to protect yourself from inflation by investing in foreign currencies with a forex company like Prime Market Cap.
Currency Trading as a Solution
As a solution, many investors choose to use currency trading as a hedge against inflation. If you are an investor who has done your research and is bullish on growing industries, it’s highly recommended that you include foreign currencies in your portfolio. Because of their various impacts on global economies, some currencies tend to fluctuate more than others.
For example, in 2008 when the real estate market crashed in South America, investors were quick to point out that all currencies from that region collapsed except for one: Chile’s peso—which rose by about 25 percent against other regional currencies over that same period. The moral? Cautious and smart investing is essential if you want to truly protect yourself from massive rate fluctuations due to currency trading.
What is Currency Trading?
Currency trading involves buying and selling a particular currency to make a profit. If you exchange your currency for another while traveling or doing business abroad, that’s not considered forex trading. (Forex is short for foreign exchange.) Currency trading also differs from buying one stock in an exchange-traded fund (ETF) that tracks a basket of foreign currencies.
Trading currencies is different in some ways than buying stocks; it’s possible to lose money quickly if you’re not careful. There are also inherent risks, including increased volatility and less liquidity. Investors can hedge against inflation by making sure their assets are denominated in other currencies besides their own.
For example, investors who live in countries with high inflation rates can protect themselves by investing primarily in assets denominated in other currencies like U.S. dollars or euros—or they can hedge their bets by investing part of their portfolios overseas as well as at home. This strategy may be more effective than simply holding cash, which doesn’t appreciate over time and doesn’t hedge against inflation risk.
Should You Start Now?
One of the biggest issues people have with investing in foreign currencies is uncertainty. Since it’s a very risky market, many investors are hesitant to get involved. However, that hesitation can cost you big time. If you want to hedge against inflation and lock in returns on your investment now, it’s imperative that you start investing now.
How to Get Started
The currency exchange market, more commonly known as forex, is a global marketplace where buyers and sellers from every corner of the world can trade different currencies.
Some exchanges are based in individual countries, like New York City (NYBOT), while others exist across borders. This cross-border capacity makes them ideal vehicles for investors looking to hedge against inflationary pressures at home.
Great Resources For Beginners
Though you can likely find some solid tips about forex trading online, we recommend checking out a book or two before diving into real-world trading. There are several great resources out there for beginners to take advantage of (including our very own Beginner’s Guide to Forex Trading). Be sure to read up on any topic that is new or unfamiliar and learn as much as you can before placing your first trade.
Conclusion
If you’re interested in learning more about how to hedge inflation with foreign exchange investments, talk to a financial advisor about your options. The foreign exchange market has expanded dramatically over recent years, and there are a number of ways that companies can be involved in its growth. Getting involved now will enable you to put yourself in a position to capitalize on what may be an unprecedented opportunity—all without taking on additional risk.
Your unique situation will dictate which method is best for you; talk to a professional if you want to learn more. There is no question that inflation is one of our biggest economic concerns as we head into 2017, but it’s not too late for companies and individuals alike to take action and protect themselves from increasing prices.
