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Not quite. Stocks, gold, Bitcoin, a house you live in (not rent) don’t produce anything (unless your stock has a dividend). You want something that produces.

Not quite. Stocks, gold, Bitcoin, a house you live in (not rent) don’t produce anything (unless your stock has a dividend). You want something that produces. Say I buy $300k worth of gold, 10% inflation hits and there’s no change in demand and its now worth $330k. Say I buy a $300k farm. 10% inflation hits and there’s no change in demand. It’s now worth $330k... but the value of production of said farm is also up 10%. This makes an opportunity. If I take a loan on my farm in year 1, I can buy a larger farm (say on 3% interest). If inflation hits I can pay down that farm loan at an ever increasing rate. This allows someone to leverage the inflation and debt to make larger purchases. It protects your INCOME from inflation. Not just your investments.

smeyer 6y ago
What you're describing isn't specific to farms. If you take out a fixed-rate loan, you'll benefit from increases to inflation (since it makes the inflation-adjusted interest rate lower). This is true whether you use that loan to buy a farm, a house, gold, et cetera. Other than the loan, it makes sense to work in real dollars (inflation adjusted) not nominal dollars (non-inflation adjusted). In real dollars, you $300k farm doesn't change in value and your income also doesn't change. In real dollars, gold (in your example) also doesn't change. Gold is a poor and weird investment for a variety of reasons, but it's not like farms are magically better than other asset classes (like regular old stocks).
- eej71 6y ago
  Perhaps I'm deeply misinformed, but as a hedge against a modest amount of regular inflation, stocks generally perform quite well over the long term - especially when compared against other asset categories.
  - milesvp 6y ago
    You’re not misinformed. This is kind of a weird thread. Generally, if you want to hedge against inflation, you buy anything but dollars. If you want a very safe hedge against inflation you buy US government bonds. They are considered the lowest default bond, and as such will generally be priced at expected inflation. Next up, if you want about 1% above inflation (and the associated risk) you go with corporate bonds. And if you want about 3%, and more risk, you go with stocks. Generally you should know the higher the interest the greater the risk. Some of the risk is short term risk, like not being able to liquidate. Some of the risk is longer term, like a company becoming insolvent. To get good returns from the stock market, you need diversity, and long time lines, and growing companies. Else luck.
gruez 6y ago
>Stocks, gold, Bitcoin, a house you live in (not rent) don’t produce anything (unless your stock has a dividend). Houses: https://en.wikipedia.org/wiki/Imputed_rent https://en.wikipedia.org/wiki/Imputed_rent Stocks: You're literally owning a share of a corporation that produces stuff. Producing a dividend (or buybacks) isn't guaranteed, but that isn't that much different than owning a farm, which can also fail to produce a profit (if costs exceed expenses).
- lettergram 6y ago
  Perhaps you missed "a house you live in (not rent)" I agree with the idea renting a home would be similar to a farm. The whole thing is you have to generate an income from the asset. Stocks are, as you mentioned, kind of similar - but IMO not precisely the same. Often companies have expenses that also inflate, so it's more similar to gold or holding something static. When you own the means of production it's a tad different. Personally, I'd consider stocks somewhere in-between. Better than gold, less good than production your own. However, owning a farm or means of production does come with more risk.
  - gruez 6y ago
    >Perhaps you missed "a house you live in (not rent)" It's not giving you cash every month, but it's saving you from having to pay rent, which is effectively the same thing. This is what imputed rent is. >Stocks are, as you mentioned, kind of similar - but IMO not precisely the same. Often companies have expenses that also inflate, so it's more similar to gold or holding something static. and farms don't? You need to buy fuel, fertilizer/feed, equipment, all of which inflate. There's also the opportunity cost of your labor, which also inflates. There also exists a much simpler way to see the equivalence between the two: what's the difference between owning a farm, and owning a share in a corporation that operates a farm?
  - imtringued 6y ago
    What you are missing is that a farm is an amazing hedge against hyperinflation because hyperinflation is generally what happens when there is a shortage of food and the government keeps issuing money that exceeds the production capacity of the nation, namely to import food from other nations. Since you are producing your own food you obviously get something to eat before anyone else and you only have to sell your surplus. The only problem with owning a farm as a hedge against hyperinflation is the government may be highly corrupt and repossess all farms and thus cause a food shortage that way. Something you won't own during a crisis may not be a good hedge after all.
WalterBright 6y ago
Even if the stock doesn't have a dividend, the stock rises to reflect when the company produces value.

smeyer 6y ago

What you're describing isn't specific to farms. If you take out a fixed-rate loan, you'll benefit from increases to inflation (since it makes the inflation-adjusted interest rate lower). This is true whether you use that loan to buy a farm, a house, gold, et cetera. Other than the loan, it makes sense to work in real dollars (inflation adjusted) not nominal dollars (non-inflation adjusted). In real dollars, you $300k farm doesn't change in value and your income also doesn't change. In real dollars, gold (in your example) also doesn't change. Gold is a poor and weird investment for a variety of reasons, but it's not like farms are magically better than other asset classes (like regular old stocks).

eej71 6y ago
Perhaps I'm deeply misinformed, but as a hedge against a modest amount of regular inflation, stocks generally perform quite well over the long term - especially when compared against other asset categories.
- milesvp 6y ago
  You’re not misinformed. This is kind of a weird thread. Generally, if you want to hedge against inflation, you buy anything but dollars. If you want a very safe hedge against inflation you buy US government bonds. They are considered the lowest default bond, and as such will generally be priced at expected inflation. Next up, if you want about 1% above inflation (and the associated risk) you go with corporate bonds. And if you want about 3%, and more risk, you go with stocks. Generally you should know the higher the interest the greater the risk. Some of the risk is short term risk, like not being able to liquidate. Some of the risk is longer term, like a company becoming insolvent. To get good returns from the stock market, you need diversity, and long time lines, and growing companies. Else luck.

gruez 6y ago

>Stocks, gold, Bitcoin, a house you live in (not rent) don’t produce anything (unless your stock has a dividend). Houses: https://en.wikipedia.org/wiki/Imputed_rent https://en.wikipedia.org/wiki/Imputed_rent Stocks: You're literally owning a share of a corporation that produces stuff. Producing a dividend (or buybacks) isn't guaranteed, but that isn't that much different than owning a farm, which can also fail to produce a profit (if costs exceed expenses).

lettergram 6y ago
Perhaps you missed "a house you live in (not rent)" I agree with the idea renting a home would be similar to a farm. The whole thing is you have to generate an income from the asset. Stocks are, as you mentioned, kind of similar - but IMO not precisely the same. Often companies have expenses that also inflate, so it's more similar to gold or holding something static. When you own the means of production it's a tad different. Personally, I'd consider stocks somewhere in-between. Better than gold, less good than production your own. However, owning a farm or means of production does come with more risk.
- gruez 6y ago
  >Perhaps you missed "a house you live in (not rent)" It's not giving you cash every month, but it's saving you from having to pay rent, which is effectively the same thing. This is what imputed rent is. >Stocks are, as you mentioned, kind of similar - but IMO not precisely the same. Often companies have expenses that also inflate, so it's more similar to gold or holding something static. and farms don't? You need to buy fuel, fertilizer/feed, equipment, all of which inflate. There's also the opportunity cost of your labor, which also inflates. There also exists a much simpler way to see the equivalence between the two: what's the difference between owning a farm, and owning a share in a corporation that operates a farm?
- imtringued 6y ago
  What you are missing is that a farm is an amazing hedge against hyperinflation because hyperinflation is generally what happens when there is a shortage of food and the government keeps issuing money that exceeds the production capacity of the nation, namely to import food from other nations. Since you are producing your own food you obviously get something to eat before anyone else and you only have to sell your surplus. The only problem with owning a farm as a hedge against hyperinflation is the government may be highly corrupt and repossess all farms and thus cause a food shortage that way. Something you won't own during a crisis may not be a good hedge after all.

WalterBright 6y ago

Even if the stock doesn't have a dividend, the stock rises to reflect when the company produces value.