Tesla CEO Musk tweeted that in times of high inflation, it’s generally better to own physical things, like a house or shares in companies, which he thinks are good products, rather than keeping your cash.
The second half of the millionaire’s tweet is similar to the investment advice that Buffett, CEO of the Berkshire Hathaway company, has given in the past.
It should be remembered that in 2009, at the end of the Great Recession, Buffett said that one of the best ways to e hedging against inflation is owning part of a good company. That is, buying shares of a company whose product or service sells very well.
That is because no matter what happens to the value of the dollar, the company’s product will continue to be in demand.
Buffett used one of his own investments as an example: “If you own the Coca-Cola company, you will get a certain share of the work of the people inside 20 years and within 50 years for your product and it makes no difference what has happened to the price level”, this is because people will continue to pay for the products they like.
Inflation has been rising steadily throughout the year. US consumer prices increased 7.9% year over year, which is the highest increase in 40 years . Gasoline price increases have been the strongest upticks, followed by hotel, rental car, and furniture prices.
The higher the rate of inflation, the more Cash loses value quickly. Investments, on the other hand, generally grow over time. That’s why during periods of high inflation, Musk and Buffett recommend investing in strong companies whose stocks are more likely to hold steady.
“If you have too much cash, you are doing yourself a disservice,” financial advisor Delano Saporu, CEO of New Street Advisors Group, told CNBC recently. .
However, it is important to remember that stock selection of companies listed on the Stock Exchange can be risky, and even if a company has performed well in the past, there is no guarantee of success. that their stocks will rise in the future.
Instead of selecting individual stocks of companies, many experts, including Buffett, recommend investing in low-cost index funds, which are less volatile, but still benefit market growth. And because these funds have all stocks in one index, they are automatically diversified.
In fact, the S&P 500, which includes companies like Amazon, Apple, and Microsoft, has outperformed inflation over the years.
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