Tag: stocks and inflation

  • The best stocks to invest during the inflation

    The best stocks to invest during the inflation

    Investing in stocks can be the best move during inflation. What are the best stocks for such an environment?
    By Guy Avtalyon

    So, stock markets aren’t going away anytime soon. But let see how stocks act in the period of inflation. They remain a driving economic force in every country in the world. Analysts aren’t quite sure what the future holds for the stock market.

    We will likely see stock markets continue to merge over the coming years. Some have even thought that we’ll see a single global stock market. This appears to be unlikely. Frankly, stocks are not good short-term protection against rapidly increasing inflation, but bonds are worse. But for long-term investors, stocks can be an excellent hedge against rising prices.

    Inflation has been creeping up on the world economy. It isn’t the first time. During the history, we had so many inflations.

    Inflation tracks the rise in the price of goods and services, which in turn shrinks the money’s purchasing power. When inflation rises, people can buy fewer goods, input prices go up, and revenues and profits go down. The result is, the economy slows down.

    But the good news is that you can make money on the market by investing in stocks. Earnings come even in times of inflation.

    How?

    Well, the truth is that too much money chasing too few goods is one classic definition of inflation. Many studies have looked at the impact of inflation on stock returns. Most studies conclude that inflation can positively or negatively impact stocks. That depends on the investor’s ability to hedge. Also, it depends on the government’s monetary policy.

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    The most important is knowing how to invest in that environment.

    Should you be concerned about inflation and your investments? If you have a substantial portion of your portfolio in fixed income securities, the answer is a definite yes.

    Inflation erodes your purchasing power, and retirees on fixed incomes suffer when they can buy less each passing year. This is why financial advisers caution even retirees to keep some percentage of their assets in the stock market as a hedge against inflation.

    The consumers will not hold cash because their value over time decreases with inflation. For investors, this can cause confusion.

    High inflation can be good, as it can stimulate some job growth.

    What can you do in periods of inflation? You can stay invested and not pay attention to the short-term fluctuations. Sometimes this can be hard.

    One common misconception about a buy-and-hold strategy is that holding a stock for 20 years is what will make you money. Long-term investing still requires homework because markets are driven by corporate fundamentals. If you find a company with a strong balance sheet and consistent earnings, the short-term fluctuations won’t affect the long-term value of the company.

     

    In fact, periods of volatility could be a great time to buy if you believe a company is good for the long-term.

    Companies that raise their prices in line with inflation tend to fare better than others when the cost of living is increasing.

    Energy companies, for example, may perform well in an inflationary environment as they can raise their prices in line with inflation. Infrastructure companies such as those responsible for toll roads, or hospitals, may also do well. They often have long-term government contracts in place with payments linked to inflation, which encourages private-sector investment.

    Generally speaking, cash would be the worst asset class to hold in a high inflationary environment. However, stocks would be a better choice. This is because a company’s revenue and earnings should grow at the same time as inflation. Companies usually pass rising costs to the consumer to maintain their profit margin.

    The concern of rising inflation has recently surfaced as strong employment numbers have caused fears of wage growth. In January, the average hourly pay, for example, in the US jumped 2.9 percent in a year. This is the largest jump in 8 years.

    Companies may increase the prices for goods and services in order to pay for these increased salaries. This element is causing concern for investors. Higher salaries for some can bring a higher cost of living.

    So, what can you do, where to invest, which stock to buy in the period of inflations?

    Oil Stocks

    There is a positive connection between the price of oil and inflation. The consumer price index helps measure inflation in the economy by tracking a basket of goods and services by households. Energy costs in households are part of the consumer price index. When the oil prices increase, it directly affects the energy costs spent by consumers. This leads to an increase in the CPI index and then inflation. Oil stocks always do well in high inflation environments.

    Utilities

    Utilities are defensive stocks. People will need utilities even in a high inflation environment. When operating costs rise for energy companies, in the final instance the consumers will pay them.

    So, the companies will maintain their profit margin. Consumers will have no choice. They have to pay for the newly inflated cost if they want to receive electricity, for example. Demand in utility companies will still be strong even in high inflation periods.

    Healthcare as best stocks

    Healthcare is also a defensive stock. They are considered safer investments as people will always need healthcare. Even when consumer budgets are poor. During the inflationary period, investors will sell out high-risk stocks. They will prefer to buy into low-risk stocks because these are considered safer. People will always need medicine and medical treatment. They will give priority in spending on healthcare as opposed to less crucial goods and services.

    Gold Stocks

    When investors notice high inflation in the economy they want to turn to safe-haven investments such as gold stocks.

    Gold traditionally is an investment held during the economic instability. High inflation causes investors to want to safeguard their investments by buying gold stocks.

    Of course, holding cash in bank accounts is a bad idea in a high inflation environment. Because the purchasing power of cash is eroded by inflation.

    Basic goods/consumer staples

    For instance, companies with higher energy costs from increased transportation costs or higher operating costs will pass these costs to the consumer. Good and services will become more expensive. Consumers will become more selectable when purchasing goods and services because they have less buying power. But, basic goods or consumer staples will still be in demand in a high inflation environment. Even if the costs increase, people will still buy bread and milk. Even if such companies increase the price of their goods, consumers will need to buy it. Consumers will not buy non-essential goods and services such as a new car or furniture. They will only spend what is necessary. That kind of company is a good opportunity.

    During the period of inflation never invest in discretionary stocks.

    Material Stocks

    Basic materials companies are involved in the exploration, development, and processing of raw materials. Hence, many times target specific resources, such as gold, silver, and crude oil. This sector also includes companies that run refineries and plants to develop refined materials. The dividend yields within this sector are above average in comparison to the wider market.

    If you’re looking to invest in dividend-paying basic materials stocks, you may also be interested in dividend-paying basic materials exchange-traded funds (ETFs). These funds offer a diversified dividend payment based on a basket of basic materials stock holdings.

    What we want to show is that there is no solution to inflation, but there’s the reason for hope. And for profits and returns of course.


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  • Cryptocurrencies a Powerful Tool Against Hyperinflation?

    Cryptocurrencies a Powerful Tool Against Hyperinflation?

    2 min read

    Cryptocurrencies against hyperinflation

    Cryptocurrencies are a powerful tool against hyperinflation


    Cryptocurrencies can be a powerful tool in protecting your funds against hyperinflation. There are pros and cons at the same time. In an interview on The Late Show with Stephen Colbert, Reddit co-founder Alexis Ohanian said yes.  He believes cryptocurrencies can be an effective tool in protecting your funds against hyperinflation. The reason he prefers cryptocurrency over regular fiat currency lays, in fact, that ”Cryptocurrencies are fuel for a potentially new internet”, as he said.

    Alexis Ohanian

    Reddit co-founder Alexis Ohanian

    Ohanian told: “Things like Bitcoin and cryptocurrency are an opportunity for us to have a store of value that is not backed by a single country.” Further, he told that cryptocurrency gives people the ability to control their own money without any fear of forceful government intervention – especially in countries dealing with unstable political and economic predicaments.

    “We sort of take it for granted the fact that we all have bank accounts, and we move money here and there, but for so many people in the world to have actually this security of knowing that what is yours is yours, because it is now digital, could be transferred with you wherever you are going, is actually pretty empowering,” said Alexis Ohanian.

    Ohanian’s viewpoint is that Bitcoin can still offer more stability than the fiat currencies of countries struggling with hyperinflation in spite of the highly volatile nature of cryptocurrencies. He recently made headlines with his predictions about the price of Ethereum and Bitcoin. A few weeks ago, the Reddit co-founder made a prediction that the prices of BTC and ETH (respectively) will reach $20,000 and $1,500 by the end of the year.

    Many are willing to say that this is an extravagant or pretty baseless prediction.

    But do you remember the end of last year?

    And Ohanian is not the only Silicon Valley entrepreneur who is bullishly optimistic on cryptocurrencies. Twitter co-founder Jack Dorsey has also previously expressed believes that Bitcoin will be the world’s primary currency by 2028. 

    The idea of utilizing cryptocurrencies to fight hyperinflation has been explored in multiple countries.

    Such experience has in Zimbabwe, Venezuela, and Argentina.

    Many people turn to cryptocurrencies during hyperinflation in wish to save themselves from losing their money. This sometimes temporarily drives up the local buy price of the cryptocurrencies.

    We will see.

    For now, the fact is that cryptocurrency gives people the ability to control their own money without any fear of forceful government intervention. Especially in countries dealing with unstable political and economic predicaments.

    Contrary to this Bank of America CTO said that Bitcoin wasn’t ”transparent in the financial moment of money.”

    That is totally strange because the definition of blockchain is – a digital ledger in which transactions made in bitcoin or another cryptocurrency are recorded chronologically and publicly – so they have to realize that Bitcoin is much more transparent than the current banking system.

    Many world big companies such as JP Morgan, Goldman Sachs, Bloomberg, New York Stock Exchange or NASDAQ jumped into crypto.

    Is the Bitcoin solution for protecting of hyperinflation?

    As you can see some experts say YES, some NO.

    On an example of Venezuela, we may try to find the answer. Venezuela created its own cryptocurrency in order to try to get out of the crisis and they named it – petro. But, it is not like other cryptocurrencies.

    Venezuela cryptocurrency - petro

    The name Petro is a kind of program of that currency: the value of each petroleum will be covered by the crude oil barrel. In addition, as President Nicolas Maduro has announced, as currency insurance other raw materials are used. The “petro” came in response to the Venezuelan authorities’ financial blockade and sanctions, and this is not about ordinary blockchain, but its value is based on state reserves of oil, gold, gas, and diamonds.

    Cryptocurrencies against Hyperinflation

    Two months later, Venezuela offered to sell its crypto, and currently, about 82 million tokens are available, which the government could sell next months. The plan for the sale of the ”petro” currencies is on the website, which was created specifically for this occasion, and the price of one unit depends on the price of one barrel of Venezuelan oil.

    President Maduro’s plan to deal with the economic crisis continues, and it is still expected that Petro will affect the economy of Venezuela, and becomes an alternative to the physical currency.

    OK, Venezuela seems to have broken a common financial law: in the world’s oil trade, the price is always calculated in dollars. But that is the other view of problem.

    Will it is helpful to Venezuela or not we will see. Intention to create their own cryptocurrency has some other countries faced with hyperinflation such as Zimbabwe and Argentina were. On the example of Venezuela, others will make decisions. The point is: can cryptocurrencies be instrument or way to beat hyperinflation?
    Alexis Ohanian and many other experts said yes.

    If you want to know more about the best stocks to invest during the inflation you SHOULD READ THIS

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