Invest in These Stocks to Hedge an Increased Cost of Living

Back when the price of gas shot up past $4 per gallon in the United States, I didn’t worry about it too much since I was making money on the Marathon stock (MRO) that I owned.  I had deliberately purchased that stock because even though I hated the thought of increasing gas prices, I knew that the oil companies would benefit.  Even though I no longer own MRO, I am still in a position to benefit should inflation and the cost of living soar.  In this article, I want to get you to think about what your costs are and how you might consider investing in order to benefit when those costs increase.  I will not recommend particular stocks but will provide examples that you could research.

The first thing you should do is take a look at your expenses and figure out the broad categories.  The biggest expense for most people is taxes.  Is there a way to benefit from an increase in taxes?  The next biggest expense is housing.  After that the proportions can vary depending upon the individual lifestyle, but transportation, insurance, food, personal items and gifts, medical expenses, and entertainment would be some of the categories to consider.

Start with thinking about what is done with the taxpayer’s money.  In the United States, taxes are spent on such things as defense, medical care for the elderly and poor, roads, schools, and other items.  Are there private companies that might benefit from increased taxes and spending on these items?  Companies that manufacture defensive weapons or provide munitions for soldiers would benefit from increased defense spending.  Companies that would be involved in improving the efficiency of health care delivery might be worth looking into as would companies that build roads or provide the material and equipment for these projects.  The big push for green energy provides some investment opportunities as well.  Examples of stocks:  GD, NOC, FSLR, FWLT, CERN

Whether you rent or own, there might be some companies to consider investing in now prior to a rebound in the housing market.  Real estate investment trusts that focus on apartments might be useful to someone who rents.  If you haven’t purchased a house but want to hedge against an increase in prices, you might consider investing in the stock of a home builder or a company that provides materials for building like lumber and drywall.  Examples:  AIV, MAA, NLY, IP, OC, BZH

The obvious example is that of oil prices and gasoline that was mentioned in the introduction.  There are several oil companies whose stock price will benefit from an increase in the oil price, but you should also consider the oil drilling companies or others in the oil service sector.  Do you like the hybrid vehicles and want to protect yourself against a marked increase in costs over the years?  If lots of people will be buying electric cars in the years to come, what about the battery makers?  Examples:  MRO, XOM, HAL, SLB, TM

Companies that make items that people have no choice but to use can benefit from an increase in inflation provided they can maintain pricing power.  Of course you have to consider that people may adjust their expenses downward so you have to look at the lower end of the market.  We are seeing that in tough times, the lowest cost producers and providers can benefit greatly as people focus on price.  Examples:  WMT, DLTR, MON, PG, BUD

I think you are starting to get the idea.  What items in your budget would be most likely to increase in price significantly and cause you to be annoyed?  How can you benefit most as you save and invest for retirement?  Maybe you just want to preserve purchasing power longer term and should invest in gold or silver?  The bottom line is that the cost of living will continue to increase, and it is important to live within your means, save and invest in a way that will help offset the increase costs.