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How To Invest To Beat Inflation

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Key Takeaways

  • Inflation increased by 0.4% in September, meaning high prices are likely to be around for some time yet.
  • There are a surprisingly high number of investments that can be used to hedge against the impacts of inflation
  • Some, like gold, have been around for thousands of years and some, like TIPS, are more modern and sophisticated

With the latest figures out yesterday, it’s clear that inflation isn’t going anywhere soon. The announcement for September sawa prices rise by 0.4%, which brings the annual rate of inflation down ever-so-slightly to 8.2%.

In the context of a target inflation range of between 2-3%, the current rate is still eye wateringly high. With the Fed determined to bring it down through the hiking of interest rates, it is likely to continue to slowly come back down to earth.

The problem is that this could take a while, and investors still need to generate returns in the meantime. Luckily, there are a number of different investment assets that hold up well against inflation.

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Some of these are pretty recent innovations, and some of them go back to when humans used horses to get around and had no flushing toilets.

We’re going to give you an overview of these investments, the pros and cons of each and how you can structure your portfolio with the aim of weathering the impacts of inflation.

Download Q.ai today for access to AI-powered investment strategies. When you deposit $100, we’ll add an additional $100 to your account. 

What does inflation do to investments?

A little bit of inflation is actually often considered a good thing for the economy as a whole. Prices that are rising modestly encourages people to go out and earn more and invest their money, and encourages companies to innovate and improve their businesses.

This is because if your wealth or income stands still, it goes backwards in real terms slowly over time as prices rise around you.

When inflation gets too high though, it puts pressure on household budgets and can reduce spending on certain things. The last year or two has been a perfect example of this. With the price of necessities such as gas, energy and food rising so much, many households have had to cut back on discretionary spending like electronic equipment, entertainment and vacations.

With less spending in the economy, companies generate lower revenues which in turn means they hire fewer people or even lay them off. This creates a negative spiral that puts the brakes on economic growth and is one of the reasons why the stock market has crashed this year.

Which investments perform well with high inflation?

There are a number of investments that can buck this trend when inflation is high. Now this isn’t to say that all of these will always outperform inflation. Different market cycles can cause volatility for different reasons, so as always the key is to diversify across the different assets available, rather than go all in on one or two.

They also won’t necessarily grow at a rapid pace when inflation is high. In many cases, these assets are designed to simply hold their value rather than fall dramatically. For example if the S&P 500 has dropped -25%, a return from another asset of -1% or +0.25% would be considered a very good result, even if it’s still below your long term target return.

Treasury Inflation Protected Securities (TIPS)

US Treasury securities are essentially loans to the US Government. When you see on the news that they’re borrowing $100m billion for an infrastructure program or military spending, Joe Biden doesn’t head down to the local Wells Fargo branch and fill out some loan paperwork.

To raise the funds, they issue Treasury Securities. Investors such as mutual funds, pension funds and individuals can then purchase these, which provide them a set rate of return over a set period of time, at the end of which they receive their money back.

So right now a 20 year US Treasury is paying a yield of 3.375%. This means that investors who buy $10,000 worth will receive a 3.375% return every year, and then after 20 years they’ll get their $10,000 back.

Now investors aren’t locked in for 20 years, they can sell the bond to another investor, but the bond itself will continue for the full time period.

The problem is that regular Treasuries don’t take into account inflation. So with inflation at 8.2% and a 20 year bond paying 3.375%, the real rate of return after inflation is actually -4.825%. Not a great deal for investors.

TIPS on the other hand, pay a set margin above the rate of inflation. The margin changes but is never less than 0.125%. This rate might look a lot lower than the standard bonds, but it can really pay off when inflation is high.

So as a hypothetical example, with inflation at 8.2% and a TIPS with a margin of 0.125%, the bond would be paying interest of 8.325%. That’s better than almost any other investment out there, especially when you consider it’s 100% backed by the security of the US Government.

It’s important to keep in mind that they can go the other way when inflation is low. If the inflation rate dropped to 1%, that same bond would now only be paying interest of 1.125%.

TIPS make up a large component of our Inflation Protection Kit, which is an Investment Kit we designed to help protect investors against record high rising prices.

In addition to TIPS, this Kit also includes a number of different other assets which have traditionally been successful hedges against inflation. Lets cover some of those.

Gold

One of, if not the oldest investment asset in the world, gold still retains its position as an inflation hedge in today’s modern economy. The history of gold as a store of value goes back to ancient civilizations like the Incas and the Egyptians. Even back then, humans realized that the scarcity and beauty of it made it a perfect commodity to be used for trade and wealth.

The world might have moved on since then, but gold still forms a major part of the global economy. Countries still lean heavily on their physical gold reserves as security for their own global financial dealings.

The US Government still holds the world’s largest gold reserve, with over 8,000 tonnes worth of physical gold stored in places such as Fort Knox.

For investors, there are a number of different ways to purchase gold as part of a wealth preservation plan. You can buy physical coins and bullion. This creates a number of problems, such as how to store it and insure it.

Companies will store it for you, but that can be expensive. You can store it yourself, but you’ll need appropriate security and many home insurance policies don’t cover gold. It’s not a straightforward process.

There are also financial products that can help. There are funds and ETFs which invest in gold, either by holding physical gold on your behalf or by investing in financial instruments such as gold futures.

Other precious metals

While gold is the most common inflation hedging precious metal, there are plenty of others that are considered investment grade as well. The most popular of these are silver, platinum and palladium.

All of these metals have a long history of use in jewelry, industrial applications and as stores of value. You can think of these as small cap metals compared to gold’s large cap. The price is often more volatile, but they can go through stages where they rise in price significantly.

The issues for investors are the same as with gold. Holding physical amounts come with insurance and security challenges or require the trust and cost of a third party security deposit. Again like gold, there are funds and ETFs which can provide exposure without the need to install a fireproof safe at your house.

At Q.ai we’ve created an Investment Kit which does all of the work for you. The Precious Metals Kit invests across gold, silver, platinum and palladium ETFs and uses AI to predict which of these metals is likely to perform the best over the coming week.

Once these predictions are made, our AI automatically rebalances the portfolio in line with the allocation which is expected to provide the best estimated risk adjusted return.

Commodities

Last on our list and another inclusion in our Inflation Kit are commodities. These are resources that are used all around the world with a demand profile that doesn’t change much based on market conditions.

Agricultural commodities such as wheat, wool and soybeans are some examples. Because we rely on these types of goods to meet our basic needs, the level of demand for them tends to stay pretty stable.

While we can all cut back on vacations or sneakers, we’re less likely to reduce our consumption of things like bread and vegetables.

This means that prices for commodities fluctuate a lot based on the underlying rate of inflation, and there are a wide array of financial products such as futures and options based on the prices of commodities.

Another major commodity is oil, which again is used in ways in our economy which are not impacted by inflation. While we’ll grumble about the price of gas, we still have to fill up our cars and trucks to get to work.

In our Inflation Kit, we use commodities based ETFs to gain exposure to these assets, and we use a sophisticated machine learning AI to allocate the right amount to them each week.

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Security concerns compel Ottawa to make 'most significant update' to Investment Canada Act in a decade – Financial Post

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Legislation would give government more time and authority to address new threats that may rise from foreign investments

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Prime Minister Justin Trudeau’s government tabled legislation that would give the industry minister more time and authority to assess foreign transactions that might compromise national security, while also making penalties for violating the Investment Canada Act more severe.

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The amendments would help the government align with the “changing global dynamics” and address new threats that may rise from foreign investments, an allusion to worries in the West about China’s growing influence, the government said in a statement.

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“Geopolitics of the world today has vastly changed in the last few years; that’s why we must be prepared to face the challenges that could endanger our economic security and our national security,” Industry Minister François-Philippe Champagne said at a press conference on the evening of Dec. 7.

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“We need to be more vigilant and this is going in that direction,” said Champagne, who described the proposed changes as the “most significant update of the law in more than a decade.”

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The Investment Canada Act (ICA) allows for the review of foreign investments in Canada based on a number of factors that include “net benefit” to the economy and national security. The legislation dates to the mid-1980s, a time when free-trade principles were ascendent around the world. That phase of globalization would lead to the fall of the Berlin Wall, the collapse of the Soviet Union, and China’s admission to the World Trade Organization in 2001.

Globalization is now headed in another direction.

A month ago, Canada’s government used the ICA to order three Chinese companies to divest their stakes in Canadian miners, citing results of a multi-step security review. This took place after the federal government in late October said any attempt by a state-owned enterprise to purchase assets in Canada’s critical minerals sector could trigger a section of the ICA that determines whether deals could be “injurious to national security,” requiring lengthy review.

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“We have gone from an era where foreign engagement strategy was centred around trade to an era that security is now the dog that wags the trade tail,” said Carlo Dade, trade director at the Canada West Foundation, a think-tank.

One of Champagne’s proposed amendments would require new filings from businesses in certain sectors prior to the implementation of the investments, giving the government a chance at an earlier stage to involve itself with transactions where there is risk of a foreigner gaining access to sensitive information.

Some of the sectors that the government will be keeping an eye on include critical minerals, artificial intelligence and businesses dealing with personal data, said Champagne.

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The bill also proposes to provide the industry minister with the power to conduct extended national security reviews of investments. Currently an order from the Governor in Council is required for this multi-step process. The change will make the review process more “efficient and flexible,” the government said.

In addition, the changes would bring stronger penalties against businesses that don’t comply with the act, as opposed to the existing ones that were established several decades ago and haven’t been revisited.

The bill also includes a provision that would allow the minister to disclose information about an investor to allies to support their foreign investment and national security reviews. Currently, information about a specific investor cannot be disclosed.

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When asked if the increased scrutiny might discourage Canada’s allies from investing in the nation, Champagne said: “I have no concern. I have been traveling the world recently and everyone wants to invest in Canada.” He added that other countries were also tightening their economic provisions due to the current geopolitical scenario.

“The proposed changes would formalize clearer and stricter processes under the act, allowing the government to more effectively implement them,” said Bob Fay, managing director of digital economy at the Centre for International Governance Innovation, a think-tank.

  1. Industry Minister François-Philippe Champagne said that following a “multi-step national security review process,” the government has asked Sinomine Rare Metals Resources Co., Chengze Lithium International Ltd. and Zangge Mining Investment Co. to divest from Canada’s Power Metals Corp., Lithium Chile Inc. and Ultra Lithium Inc.

    Ottawa orders Chinese companies to exit three Canadian lithium miners

  2. Brine pools used to extract lithium next to a lithium mining camp.

    Canadian lithium miner ordered to break with Chinese investor finds replacement in Australia

  3. Industry Minister François-Philippe Champagne, right, with Ontario Premier Rob Ford, left, in Oshawa in April.

    ‘They see stability and calm here’: Canada looks like a good place to invest to some EV producers

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Twenty-four investments were subject to extended national security reviews in the fiscal year that ended March 31, 2022. So far, in the current fiscal year, the government ordered Sinomine Rare Metals Resources Co., Chengze Lithium International Ltd. and Zangge Mining Investment Co. to divest from Canada’s Power Metals Corp., Lithium Chile Inc. and Ultra Lithium Inc., respectively.

Analysts say the move to push China out of the lithium industry is part of a series of steps being taken by the United States, bigger European economies, Canada and other democratic economies to shift their industries’ supply chains away from China, which dominates the EV industry, and towards friendlier nations.

Reflecting on the move, Trudeau said at an event on Dec. 5 that he wants to make sure that Canada is “in control” of its critical minerals so that the country’s allies can rely on the nation at a time when the demand for these minerals have increased primarily due to the rise in sale of electric vehicles globally, as the world looks to shift away from fossil fuels.

• Email: nkarim@postmedia.com | Twitter:

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Porsche retail network continues its investment in Canada

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Five of the brand’s retail operations inaugurated new buildings this year while an entirely new sales point will be added in the Niagara area

Toronto, ON, Dec. 08, 2022 (GLOBE NEWSWIRE) — Porsche Cars Canada, Ltd. (PCL) is pleased to recognize the substantial investments by its dealer partners coast to coast in 2022 with the inauguration of five new retail point facilities as well as the ground breaking of an entirely new location in St. Catharines, ON.

“As we look back to 2022, one of the proudest accomplishments will certainly be the enhancement of several of our brand’s retail locations across the country,” said John Cappella, President and CEO, Porsche Cars Canada, Ltd. “The investments by our dealer partners reflect the confidence in our brand and its enduring success in Canada.”

Three existing dealerships opened the doors to new facilities this year: Porsche Centre Edmonton and Porsche Centre Winnipeg, both operated by Go Auto, as well as the Wyant Group’s Porsche Centre Saskatchewan. Moreover, two other new buildings featuring the latest Destination Porsche design architecture were inaugurated. Bookending the country, Dilawri and Open Road Auto partnership Porsche Centre Richmond as well as Steele Group’s Porsche of Halifax now espouse the striking new corporate concept. The new design was first adopted in Canada with the opening of the relocated Porsche Centre Quebec, owned by Drew Tilson, followed by the all-new Lithia-Motors-operated Porsche Centre Markham last year.

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The Destination Porsche concept is characterized by its emphasis on brand experience and inspiration, its flexibility, and the use of digital media for individualized communication. A central idea is that dealerships are intended to become a central gathering place for the Porsche community, appealing to current as well as new customers. Destination Porsche as well as all other Porsche Centres are also ready for the accelerated electrification of the brand’s line-up, with dedicated electric vehicle (EV) charging stations on-site, as well as an EV battery repair room for servicing the Porsche Taycan and the brand’s future electric models.

In addition to the enhancements at existing retail locations, earth works have officially commenced at the future site of Porsche Centre Niagara, an entirely new dealership located in St. Catharines. The Policaro Group will be operating this point along with Porsche Centre Oakville. Furthermore, the group is slated to inaugurate Porsche Centre Kitchener-Waterloo in 2023. The coming year will also see the opening of Mark Motors’ relocated facility in Ottawa. These investments by PCL’s dealer partners will benefit customers and give new momentum to the evolution of Porsche automotive retail in Canada.

About Porsche Cars Canada, Ltd.

Established in 2008, Porsche Cars Canada, Ltd. (PCL) is the exclusive importer and distributor of the Porsche 911, 718 Boxster and 718 Cayman, Taycan, Panamera, Cayenne, as well as Macan. Headquartered in Toronto, Ontario, since 2017, PCL employs a team of more than 60 in sales, aftersales, finance, marketing, retail development, and public relations. They, in turn, work to provide Porsche customers with a best-in-class experience in keeping with the brand’s 70-year history of leadership in the advancement of vehicle performance, safety, and efficiency. In 2019, a Parts Distribution Centre opened its doors in Mississauga to service the countrywide network of 21 Porsche Centres. PCL is the dedicated subsidiary of Porsche AG, headquartered in Stuttgart, Germany. In 2021, Porsche delivered 9,141 units in Canada, marking its best-ever sales year.

At the core of this success is Porsche’s proud racing heritage that boasts some 30,000-plus motorsport wins to date.

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Exclusive: Canada’s biggest pension plan, CPPI, ends crypto investment pursuit

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TORONTO, Dec 7 (Reuters) – Canada’s biggest pension fund, CPP Investments, has ended its effort to study investment opportunities in the volatile crypto market, two people familiar with the matter told Reuters.

The reasons behind CPPI’s abandonment of crypto research were not immediately clear. CPPI declined to comment but said it has made no direct investments in crypto. It referred to previous comments on cryptocurrency by its CEO, John Graham, in which he sounded a note of caution.

CPPI’s Alpha Generation Lab, which examines emerging investment trends, had formed a three-member team in early 2021 to research crypto currencies and blockchain-related businesses, with a view to taking potential exposure, the people added.

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But CPPI abandoned the pursuit this year and redeployed the team to other areas, the sources said.

CPPI’s move also comes as two of Canada’s largest pension funds have written off their investments after the collapse of crypto exchange FTX and crypto lender Celsius this year.

Earlier this year CPPI CEO Graham said that the pension plan, which manages C$529 billion ($388 billion) for nearly 20 million Canadians, did not want to invest in crypto merely because of the fear of missing out.

“You want to really think about what the underlying intrinsic value is of some of these assets and build your portfolio accordingly,” Graham said in a June speech. “So I’d say crypto is something we continue to look at and try to understand, but we just haven’t really invested in it.”

It was unclear when CPPI dropped its plan. One of the sources said the team was actively assessing investment opportunities as late as July this year, but the second source said the team ended its work earlier than that.

The details of CPPI’s pursuit of cryptocurrency investment and its decision to end it have not been previously reported.

The sources declined to be identified because the information was not public.

Canadian pension funds’ exposure to crypto sector has come under scrutiny following the FTX debacle. While Canadian pension funds are not prohibited from buying cryptocurrencies, they are known for their risk-averse investing strategies to generate steady returns for pensioners.

While CPPI has avoided crypto investments, some of its peers have been caught up in the sector’s mayhem this year. The Ontario Teachers Pension Fund (OTPP), which oversees about C$242 billion in assets, has written off its investments worth C$95 million in FTX. OTPP said it was “disappointed” with its investment in FTX.

Earlier this year, Canada’s second-largest pension fund, Caisse de dépôt et placement du Québec (CDPQ), said it was writing off its investment of C$150 million in bankrupt crypto lending firm Celsius. CDPQ has initiated legal proceedings against Celsius in bankruptcy court.

The Ontario Municipal Employees Retirement System (OMERS), which manages C$121 billion, made three allocations to crypto-linked businesses through its OMERS Ventures business between 2012 and 2018 but exited all investments in 2020.

Another Canadian pension fund, OP Trust, told Reuters that it has investments in the digital asset fund space that is managed externally. The investment is in the underlying crypto technology, it said.

($1 = 1.3650 Canadian dollars)

Reporting by Divya Rajagopal in Toronto
Additional reporting by Maiya Keidan
Editing by Denny Thomas and Matthew Lewis

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