Jerónimo Peralta
MX Managing Partner and CFO
Maquia Capital and Maquia SPAC
Expert Contributor

Alternative Assets to Hedge Against Inflation In 2022

By Jerónimo Peralta | Thu, 08/04/2022 - 13:00

While economically complex times are extremely challenging for investors, these are times when they must use all their skills and creativity to reduce losses and, ideally, find growth opportunities amid a crisis.

Currently, the annual inflation rate in Mexico is higher than 7.5 percent, according to data from the Bank of Mexico, and is around 8.6 percent in the United States. Rising inflation levels decrease future cash flows and the projected value of their investments. In this sense, investors are looking for alternatives to diversify their portfolios, reduce risks and make their money profitable.

“The search for alternative assets to invest in during times of inflation helps protect investors from the abrupt jolts that result from inflation and also has a less volatile behavior than stocks in the stock market. They are a great option to protect yourself in the adverse context we are currently experiencing,” says Guillermo Cruz, US Managing Partner of Maquia Capital.

Alternative assets, by definition, are positioned outside of traditional market movements. In general, they are investments that can generate profits even during economic turbulence or are placed over longer time horizons to mitigate potential losses in the immediate future.

The most traditional are investment funds, venture capital companies, infrastructure, real estate or even investments in renewable energies.

Importance of Investment Diversification

Investment diversification allows investors to be less exposed to the ups and downs of the economy in the short term. Depending on the risk level of that investment, returns can be very high immediately; for example, when there is a technological paradigm shift, such as with advances in renewable energies or in the long term with investment funds focused on sustained money growth over 10 to 15 years.

Investment funds must analyze variables that affect the alternative asset chosen for investment, whether technological innovation, the growth of a city, public policies to be implemented by a government, or even sustainability. In many cases, the yield will appear in the long term. However, it still implies a greater growth than seeing a person's savings and purchasing power lost due to inflation.

The critical thing about alternative assets is that they win the close race against external pressures such as inflation. It is an option that allows money not to stagnate or be stranded, even in difficult times, such as that which we are experiencing in 2022 in terms of inflation, which has shaken disruptive markets such as cryptocurrencies.

Photo by:   Jerónimo Peralta