Successful Investing During Inflation | Penny Stocks

Posted on 26 December 2012. Tags: investing during inflation

Ways of Investing During Inflation

There are some mutually exclusive strategies that can be used when investing during inflation. One strategy involves ratcheting up the level of risk one is willing to chance in order to achieve the returns necessary to beat out the inflation rate. The other is to park funds in a safe place where they are not likely to be destroyed by inflation, and then wait out the storm in the realization that you are not going to make much, if anything, until the financial skies clear once again.

This dichotomy is the real inflationary trap, since many investors depend on the returns that their portfolio yields and cannot spend years without any income. Ergo, they are forced either to take risks they do not feel comfortable with, or to live off their principal, and therefore harm the future income stream upon which all of their financial plans were long ago postulated upon.

Some Suggestions for Investing During Inflation

? Inflation destroys purchasing power, which means that each dollar buys less than it did previously. Because most people cannot significantly raise the number of dollars they make, they have to economize with the ones they do have. This makes value retailers such as WalMart or Dollar General likely candidates for improved earnings and thus higher stock prices. Value priced restaurants are also good plays. McDonalds always seems to do well.

? Liquor and gambling stocks were always expected to do well in tough times, but lately they have not proven to be the reliable contrarians they once were.

? Precious metal producers tend to rise in tandem with the inflation rate, but it is not easy to sift out the real players from the old guys with a hole in the ground and big but basically unrealistic plans.

? For those who are sick of trying to beat the game, US TIPS seem to be the vehicle of choice for investors. Buyers get a very small return on their investment, but are insulated from inflation by having the bond tied to the US Consumer Price Index.

Investing during inflation can be a frustrating exercise, but it is important to keep in mind that you want to position your investments not to ride out the inflationary hurricane but to be well placed to take off once blues skies return.

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Source: http://www.stockrockandroll.com/investing-2/successful-investing-during-inflation/

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