If you are somebody who has invested in stocks, you know how inflation can affect their prices. Stagflation is even worse, as it is a higher level of inflation with stagnant economic growth.
It is a period of difficulty due to high levels of unemployment, increased prices, supply shock, and reduced economic productions.
But thankfully, there are methods and tips you can follow during such dark times that can be harsh on investors. There are platforms that offer services like futures trading solutions to help you beat the ill-effects of stagflation.
Through this article, we will try to understand what stagflation investing is, and why investors should be careful during this period of stagflation.
Since a period of high inflation is accompanied by risks like slower economic growth, investors need to use methods to withstand them. These methods can commonly be called as the ones used in stagflation investing.
Tips for Stagflation Investment
1. Work on Diversifying your Portfolio
Diversification of your investment portfolio is key to combat the risks of stagflation.
If you get to know that stagflation is going to occur in the global economy, you should be looking to add assets like commodities to your portfolio which will be discussed later.
The more investments are diversified, the more you will be protecting yourself against the risks of stagflation.
2. Short Selling
Short selling is the act of borrowing or investing in a security whose price is estimated to fall, and selling it in the open market.
You then purchase the same stock for a lower price than the one at which you sold it. This way you boost your returns during periods like stagflation. Keep in mind that short selling could the accompanied by risks which requires you to learn more about it.
The first step of short selling is to open and fund a margin account so that you can hold bonds, cash, stocks, mutual funds etc. as collateral.
Then you will have to conduct a fundamental and technical analysis to decide on a company’s stock. You will also have to look at companies that you should avoid as their business models or strategies can seem outdated.
It is also necessary to understand the risks that comes with short selling. They include potentially limitless losses, sudden change in fees, deduction of dividend payments, failing to meet the margin call etc.
3. Invest in the Following
Bonds and Credits
One commonly used tip to hedge stagflation is to invest in bonds and credits.
A bond is a security type issued by corporations or governments, under which they have repay the principal as well as the interest within the specified amount of time.
Commodity Trading is done through futures and options, and through the stocks of companies that sell the commodity. There are online platforms that offer futures trading solutions to invest in commodities through futures contracts.
You can also do it through mutual funds by investing mutual funds in the stocks of such companies. This gives you amazing opportunities to diversify your portfolio and offers liquidity as well.
Commodities like oil, sugar, and meat are great to invest in during times of inflation due to their high prices.
Hence, commodities can be said to act as inflation or stagflation hedge, as their prices rise with inflation.
You can be sure of huge returns that outperform inflation, but one should be mindful of the risk associated with investing in commodities especially the volatility.
Checkout online platforms that offer HTS trading solution for commodities.
Investing in real estate is another way to hedge the negative effects of inflation. Consider checking out Real Estate Investment Trusts.
They raise capital by selling stock shares and issuing bonds. Real estate investment trusts use the proceeds to purchase real estate assets and lease them out.
They are required to spend almost all of their after-tax profits as dividends to the ones who have invested in them.
Another way to invest in real estates is through crowdfunding real estate platforms. They collect money from a number of investors to fund for development projects.
Keep in mind that they may charge fees and hence you should check for additional costs which can affect your returns negatively.
You can also invest in value stocks and cyclical stocks during periods of stagflation. Historical data has shown value stocks to outperform in times of high inflation making them a good choice to invest in.
4. Talk to a Financial Advisor
Professional help would be the last straw or in some cases even the first thing to do once you get to see the signs of stagflation.
Make sure that they have enough credentials and qualifications to advise you during such a difficult period.
Financial advisory firms help you with strategies to marriage and fight the risks that come with stagflation.
You can also look for trading brokers that offer HTS trading solution and futures trading solutions to capitalise on the right opportunities.
Investing in These during Stagflation is a Big No!
1. Growth Stocks
Slower economic growth affects the prices of growth stocks negatively which can intern affect the returns you expect from these investments.
Invest more in companies in upstream production which refer to the raw materials needed to produce goods.
2. Cash Investment
Cash and cash equivalent are also something you should avoid during periods of inflation and stagflation.
The skyrocketing consumer prices will be nowhere near the returns that cash and cash equivalent investments generate.
Look for online platforms that offer HTS trading solution so that you can invest in other assets and commodities to reduce the risk of inflation.
Focusing on diversified portfolio rich in growth and value stocks is key when it comes to facing stagflation
Focus on a long-term investment portfolio which lets you mitigate risks associated with this period of time. Turn a blind eye to all the short term investments and focus on building a portfolio with investments that will do well in the future.