chirp Tesla CEO Elon MuskIn times of high inflation, he said, “it’s generally better to own material things like a house or shares in companies that you think make good products,” rather than keeping your money in cash.
As a general principle, for those looking for advice from this thread, it is generally better to own physical things like a home or stock in companies you think make good products, than dollars when inflation is high.
I still own & won’t sell my Bitcoin, Ethereum or Doge fwiw.
— Elon Musk (@elonmusk) March 14, 2022
The second half of his tweet is in line with investment advice Berkshire Hathaway CEO Warren Buffett has given in the past, CNBC reported.
Back in 2009, at the end of the Great Recession, Buffett said at Berkshire Hathaway’s annual shareholder meeting that one of the best ways to guard against inflation was to own a stake in “a great company”.
He attributed the reason to the fact that no matter what happens with the value of the dollar, the product of the business will still be needed.
He used one of his own investments as an example. “If you own Coca-Cola, you get a share of the work your employees do for about 20 years from now and 50 years from now from the average life of the product, and whatever the price is, people will still demand the products they like.”
US consumer prices rose 7.9% year on year, the highest jump in 40 years. Gas price increases led the way, followed by hotels, car rentals and furniture.
The higher the inflation rate, the faster cash loses value. On the other hand, investments generally grow over time. That’s why during periods of high inflation, both Musk and Buffett recommend investing in strong companies whose stocks are likely to stay flat.
“If you have too much money, you are doing yourself a disservice,” said Delano Sapporo, financial advisor and CEO of New Street Advisors.
However, it is important to remember that stock picking can be risky, and even if a company has performed well in the past, there is no guarantee that its stock will rise in the future.
Instead, many experts, including Buffett, recommend investing in low-cost index funds, which are less volatile, but still benefit from market growth. Because these funds hold every stock in the index, they are automatically diversified.
As proof, the S&P 500, which includes companies like Amazon, Apple and Microsoft, has outpaced inflation over the years.