Inflation is the event wherein the dollar loses value and consumers suffer from high commodity prices. To illustrate, you may not be able to buy your favorite morning coffee because it is sold at a much higher price, therefore reducing the buying power of your dollar. When inflation threatens the economy, it makes sense to protect your net worth become as immune to inflation as much as possible. What you need in this event is an effective inflation hedge, such as oil.
The US economy may be quite stable but when concerns hover around economic crisis and inflation, savvy investors look for ways in diversifying their investments that would help them through a rough financial patch.
Some would argue that stocks and bonds as well as gold are the best investments to hedge against inflation. However, we should also remember that stocks and bonds are dependent on the value of the dollar while gold does not readily generate cash flow.
Many financial experts would suggest that you pick an investment that increases in value and is more effective in cushioning you in times of inflation. Mickey Cargile, a certified financial consultant, believes that commodities like oil and gas are the best inflation hedges for these reasons.
Investing in Oil and Gas Generates Cash flow
Whether you’re an investor on a drilling project or a stakeholder in an oil company, oil will always provide you with cash flow. Unlike gold that sits in your vault, but not passively making money for you, oil will provide an extra income revenue that can help stabilize your finances in case of a rise in inflation. Knowing that you have the extra dollar to spend or save will give you more financial security and confidence.
Energy Demand Increases as the Economy Strengthens
A strong economy is a good breeding ground for more investments and businesses, which is a surefire way to ensure that there is demand for energy. Despite the efforts in establishing renewable and alternative energy sources, energy from oil is still very much in demand and will continue to be for many years to come.
Oil Has More Impact than Other Assets
Oil is a global commodity and can impact our lives in many significant ways. Without oil, there would be no heating in your home during winter, you would not be able to drive your car to work, and there would be no energy to power your business. Indeed, it is very difficult to be parted from oil because it does a lot of things to directly or indirectly make life and businesses easy, convenient, and comfortable.
It is always best to consider a new investment with regards to inflation, and vice-versa, because they will inevitably affect one another when financial crisis strikes. Furthermore, it is good to get an investment not just because it hedges inflation, but because it can also become an extra source of passive income.