When the value of the dollar falls, it doesn't mean that a $20 bill turns into an $18 bill. Instead, it means that a dollar has less purchasing power than it might have had in the past. To protect yourself against this, you can buy investments that have values that can adjust to make up for a less valuable dollar. This can be an investment in a company that can raise its prices and profits in conjunction with a falling dollar or an investment in an asset whose value will adjust with the dollar.
One of the safest ways to protect yourself against a falling dollar is to purchase an inflation-indexed US Treasury security. The Treasury offers two different types of inflation-protected securities. I bonds are aimed at individual investors while treasury inflation protected securities are suitable for individuals or for large institutional investors. They have different ways of adjusting with inflation, but both protect you against a falling dollar by increasing their returns to keep up with a changing consumer price index.
Stocks are generally considered to be an excellent way to protect yourself against inflation. The reason for this is that when prices go up, companies can increase the prices that they charge for their products. This essentially cancels out inflation. At the same time, the stock you buy also represents a share of the company's tangible assets like its buildings and equipment. The value of those assets also go up with inflation.
Investing in property is also a hedge against inflation. While a government can always print more money, it can't make more land. The scarce nature of real estate usually causes it to increase in value along with a falling dollar. When you invest in investment real estate or investment real estate funds, you also benefit from any rent increases that come with inflation. Some commercial properties also transfer responsibility for paying their operating expenses to tenants, further sheltering you from the impact of a falling dollar.
While real estate is one tangible investment that hedges against inflation, it isn't the only one. Gold is a classic inflation hedge since, while the value of a dollar may fluctuate, an ounce of gold will still be an ounce of gold. Other tangible investments like collectibles or commodities can also protect your money against inflation although the logistics of owing and trading them can be complicated.
If your concern is the performance of the dollar relative to the rest of the world's currencies as opposed to being concerned about inflation in general, domestic investments may not provide enough protection. You can protect yourself by using your money to buy foreign investments. Whether you buy foreign bonds, stock in foreign companies, funds that hold foreign currency or you convert your dollars to a different currency and take out an account in a foreign bank, any of these investments will get your money out of the U.S. dollar, protecting you if the currency's value falls.
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