Casey Research Report: 3 Ways to Shelter Your Cash From Inflation

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Casey Research exposes the best vehicles for protecting the purchasing power of the cash needed during times of rapid inflation.

In Casey Research’s latest report entitled, “3 Ways to Shelter Your Cash from Inflation”, Terry Coxon, Casey Research Senior Economist and Contributor to The Casey Report, exposes the best vehicles for protecting the purchasing power of the cash needed during times of rapid inflation: deferred annuities, cash value life insurance and retirement plans. These tools do the job by reinvesting money market yields, which tend strongly to track inflation rates, without loss to current tax.

The high rate of inflation many believe is waiting not too far down the road will be an earthquake for investment markets. The likely winners (gold, silver, precious metals stocks) and the likely losers (long-term bonds and most stocks) aren’t too hard to identify. But separating the sheep from the goats is only one element for financial success in an environment of rapidly rising consumer prices.

Higher rates of price inflation will bring greater volatility to all financial markets. The higher inflation is expected to go, the more volatility should be expected for assets of every type. Even if in fact the dollar is on the road to perdition, there will be detours and backtracking along the way.

Inflation doesn't operate smoothly; it is a disrupter for both the economy and for the political system. From time to time over the next five to ten years, the Federal Reserve will come to see inflation as its most urgent problem. And every time that happens, the Fed will slow the creation of fresh dollars or even put up a big INTERMISSION sign and stop printing altogether for a while.

Such seizures of monetary virtue won’t last long, but while they do last, they will hammer most investment markets, including the market for gold and for stocks of companies that produce or look for it. One could be absolutely correct about where the dollar is headed in the long run and still have a scary ride.

2008 was just a preview of the downdrafts needed to survive. There will be even uglier smash-ups, and it will be the hard-money investors who get carried off on a stretcher. To avoid this, include cash as a constant, permanent element of a portfolio. Cash is a courage booster. Having a substantial cash reserve makes it easier to hold on to other investments when they are getting battered and it becomes tempting to bail out. And cash gives investors the wherewithal to buy on dips – and on the big dumps.

Of course, cash will be the asset whose value is shrinking. But the rate at which the purchasing power of cash declines will depend very much on how it is held.

Interest rates on money market instruments, such as Treasury bills and large CDs, track the rate of inflation fairly closely. By creating money fast enough, the Federal Reserve can keep rates on money market instruments one or two percentage points below the inflation rate, but not indefinitely. And any such effort to suppress short-term interest rates succeeds at the cost of producing even higher inflation later. Similarly, the Fed can keep money market rates one or two points above the inflation rate for a while, with the likely eventual result of a slowing in inflation. But over long periods, the average yield on money market instruments about matches the average rate of inflation.

Given that money market yields travel the same path as inflation rates, holding cash doesn’t seem to be terribly painful. The loss in purchasing power about gets made up for by the yield. That’s a nice thought – until the taxes. Even though the yield is merely replacing the purchasing power being lost, the yield is subject to income tax, unless something is done about it.

Doing nothing about it is risky for a portfolio. When price inflation gets to, say, 10% and money market yields are near the same level, for those in the 40% tax bracket, purchasing power on cash will be lost at a rate of 4% per year. The situation will get worse if inflation moves higher, and the temptation will be to cut back on cash in order to cut back on the leakage. And that will result in being dangerously ill-prepared for the next INTERMISSION sign.

Logically, then, to make holding cash cheap or even free, cash will need to be held in an environment where the yield is protected from taxes. To examine the different possibilities click here to access the full free report:

Casey Research has been a leading provider of actionable research for over 30 years through its highly subscribed publications including Casey’s flagship publication, The Casey Report. This publication is dedicated to identifying powerful emerging trends and the investment opportunities they offer.

About Casey Research
Casey Research is a leading independent provider of investment research with over three decades of heritage. With specialized expertise in energy, metals & mining, commodities and technology, Casey Research provides clients with in-depth analysis of investment opportunities in high-growth areas. Founded by legendary investor Doug Casey, the company carries on his tradition of unbiased research, hands-on analysis, deep industry expertise, and a talent for uncovering uniquely profitable investment opportunities. Casey Research’s team of seasoned investors, economists, geologists, and analysts are dedicated to uncovering important market trends and providing the guidance and recommendations to profit from them. Find out more at


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Donna Cox-Davies
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