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How to prepare for inflation before it happens • Benzinga

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Inflation, like death and taxes, is a phenomenon that experts say will occur over a period of time. Although the United States has experienced brief periods of deflation, economic growth tends to be accompanied by inflation. Inflation is only neutralized if the 2 main sources of wealth creation – income and assets – increase at a rate faster than or equal to headline inflation.

Inflation does not increase at a constant rate and can sometimes jump, as seen recently when restrictions related to COVID-19 were lifted and economic activity resumed in the United States. In order to protect your assets, returns and dividends, it is important to prepare for inflation. The Federal Reserve predicts that inflation will rise 4.2% in 2021, illustrating the need to protect your assets from rising prices.

How does inflation affect investors?

When inflation rises, assets with long-term cash flows tend to perform poorly because cash in the future is worth less than it is today. Conversely, rental income from real estate tends to perform better with higher inflation.

Savings

Inflation can reduce your savings, even if you have a fixed rate, because your income will not keep pace with inflation. This is particularly bad if you retire and live off your savings, as inflation reduces your purchasing power.

Fixed income investments

Investors buy fixed income securities like bonds, treasury bills, and CDs because they want stable returns in the form of interest payments. However, the purchasing power of these interest payments declines as inflation rises. Therefore, bond prices tend to fall when inflation rises. Higher inflation is even worse for long-term bonds because of its impact on cash flows which will be lower in the future. However, higher risk bonds tend to offer more cushion than their quality counterparts during times of high inflation.

Equity investments

Stocks don’t always perform well when inflation rises. Higher inflation usually causes the central bank to raise interest rates, which in turn increases borrowing costs for businesses, while high inflation lowers the purchasing power of households. However, not all stocks perform badly during times of high inflation. Profits are typically the gap between wholesale and retail prices, and higher inflation requires higher levels of working capital. In times of inflation, this gap includes inventory and rising prices. So, real estate stocks tend to do well when inflation rises, while retailers who hold huge stocks tend to lose out.

Meanwhile, commodity prices usually rise disproportionately with higher inflation. For example, a copper mining company may realize higher profits while processors and manufacturers may be hit hard by higher costs before they increase their prices. While the margins won’t change much, it could be more complicated to forecast or predict financial performance, resulting in stock price volatility.

Higher inflation and economic volatility share a strong relationship. Larger changes in the economy will affect businesses that tend to be more volatile, including construction, capital goods, and consumer durables. However, relatively stable industries such as health care will not be greatly affected by rising inflation.

In short, inflation benefits commodities and real estate while hurting industries with high inventories. However, the worst impact of inflation will come from the Federal Reserve’s interest rate hikes and not from the direct impact of rising prices alone.

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How do you prepare investments for inflation?

When inflation is rising or is expected to rise at a faster rate, you need to take steps to protect your investments. An example might be to diversify into commodities and real estate and move away from retail to ensure that your returns are not severely affected by inflation. You can invest in inflation-proof vehicles that protect your returns from rising prices.

What is an anti-inflation investment?

Inflation-sheltered investments are assets that are not exposed to rising prices. Instead, their value tends to increase as the prices of goods and services rise.

Types of inflation-proof investments

Inflation can have a significant impact on a portfolio over time. There are 2 things you can do to reduce the effect of inflation on your investments. Diversifying your portfolio into commodities and real estate can have an overall positive impact on your returns.

Money market funds or tips

Money market funds can reduce your exposure to inflation. In the last week ending October 1, 2021, Lipper’s data revealed that investors globally bought $ 13.95 billion in money market funds, up from an estimated net sale of 21.85 billion. million dollars the week before. Meanwhile, Inflation-Protected Treasury Securities (TIPS) issued by the US government can protect you against rising inflation. However, income and returns from TIPS tend to be low.

Immovable

Real estate companies generally profit from inflation even though mortgage rates tend to be fixed. Rising costs will be offset by rising prices, but property managers with a large inventory could face some inflation-related issues. However, landlords can increase rental prices in line with inflation, which provides long-term inflation protection.

Equity investments

Higher inflation tends to boost nominal GDP and ultimately stocks. However, it is important to choose stocks that are not exposed to inflation such as oil or real estate companies. Inventories that have high inventories such as manufacturing or retailing tend to be hit hard by inflation.

Merchandise

Commodities offer a good hedge against rising inflation. In some cases, commodities contribute to higher inflation, which justifies their holding during periods of inflation.

Fixed rate debt

Fixed rate debt pays a specific interest – called a coupon – over the life of the asset. However, high yield bonds tend to perform well during times of too high inflation, even though they are more volatile than traditional bonds.

Benzinga’s Best Online Brokers

Below, Benzinga provides a list of brokerage firms to help you invest better during times of high inflation.

Protect yourself against inflation to enjoy stable returns on your investments

Inflation is uncertain and, even if it is beyond your control, you need to take steps to protect your investments, assets and returns. Actions such as diversifying your portfolio into TIPS, ETFs, commodities or real estate are a good way to ensure that you benefit from your investments when inflation rises. Visit Benzinga Pro for more information on how to protect your assets against inflation and benefit from real-time market information.

Frequently Asked Questions

What should you buy before inflation hits?

1

What should you buy before inflation hits?

demand

Henri kouam

1

Real estate and assets such as farmland tend to increase in value with inflation. Depending on your risk tolerance, you can invest in commodities and commodities such as metals and agricultural products. However, these assets are subject to market volatility.

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Benzinga

How to protect yourself from inflation?

1

How to protect yourself from inflation?

demand

Henri kouam

1

You can’t completely protect yourself from inflation, but you can invest in assets that tend to increase in value with inflation. Assets like commodities and real estate are good during times of inflation. You can invest in inflation-indexed ETFs, which protect your returns from rising inflation.

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answered

Benzinga

0 Commissions and no minimum deposit. Everyone has smart tools to invest smart. Webull supports full extended trading hours, which includes full pre-trade (4:00 am – 9:30 am ET) and after hours (4:00 pm – 8:00 pm ET) sessions. Webull Financial LLC is registered and regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). He is also a member of the SIPC, which protects (up to $ 500,000, which includes a limit of $ 250,000 for cash) against the loss of cash and securities held by a client of a brokerage firm. member of the SIPC in financial difficulty.



How to prepare for inflation before it happens • Benzinga

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Eleon Lass

Eleanor - 28 years I have 5 years experience in journalism, and I care about news, celebrity news, technical news, as well as fashion, and was published in many international electronic magazines, and I live in Paris - France, and you can write to me: eleanor@newsportal365.com

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