The Best Investing Strategies For Inflationary Times – Forbes
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Well, it’s finally here – the ‘I’ word is back. After threatening to poke its head out and mess with all of our financials, we are now in the state of ‘transitory inflation’. The term itself is menacing. Investors are concerned. Ideas are flying around, yet it is not clear what investors should do if anything.
What exactly is ‘transitory inflation’? Inflation is the progressive increase in prices for goods and services over time. Further if something is transitory, it could mean it isn’t permanent or that it lasts a short period of time. To give context, since 1926, the historical average inflation rate is 2.6%. Today it is trending closer to 5.4%.
Looking through this lens, investors are simply solving for how to manage their portfolios for what may be a very short period of time. When there are challenges in the marketplace, the best advice is to stick to your knitting. It’s boring, but it’s often the right move. An asset allocation strategy works because it is built to withstand all market cycles.
But just because that is the right advice, it doesn’t mean investors follow it. What investors really want is to do something – take some action.
There are a few moves investors can make right now that might alleviate their stress over inflation and manage the impact on the portfolio. One is strategic and two are more tactical in nature. These ‘hedges’ so to speak, can provide investors with some peace of mind in navigating the markets.
One is strategic and two are more tactical in nature. These ‘hedges’ so to speak, can provide investors with some peace of mind in navigating the markets.
Run Towards Equities and Away from Cash
Out of all the choices an investor needs to make in fighting inflation, perhaps the best advice is simply the easiest to follow. Stay invested in equities.
It is straightforward and pragmatic advice. A company facing rising costs, can simply offset them by raising prices, which raises revenue and earnings. A win for the company and the investor. It’s a perfect inflation hedge and is consistent with an asset allocation strategy.
Investors who are more anxious about inflation may want to allocate even a few percentage points more of their portfolio to equities to fight off these fears. Remember, we said this inflationary period is transitory; when prices stabilize, investors can simply peel back this excess allocation.
And one thing to remember is that this time around, with inflation, savings rates are also not …….