You might be asking yourself what your strategy should be in these times given the prospect of inflation. Clearly inflation makes it harder to make profits, so if we are concerned about inflation, then there are certain types of investment we should be consider over others. I would make the following points:
1. Bonds: People like to place money in bonds because they are considered safe. I would discourage investing in long-dated bonds because inflation is going to erode the value of them in future.
2. Property: Property is of course a tangible asset class so we would normally expect property prices to rise with inflation. This is however not true if the property market is over-leveraged, as it is in most Western countries. The exceptions are Japan and the Philippines. In these countries you can safely buy property. In Japan particularly the yields on property can be particularly good in suburban areas. In Western countries, its harder to find low-priced property because the bubble swept most markets. I would restrict your investments for a few years until inflation has knocked a few highly-geared home owners out of the market, whether because of rising interest rates or a job loss. Rural property makes the most sense in depopulating towns, unless there is some fundamentals reason to buy elsewhere.
3. Shares: Stocks will initially benefit from a little inflation because it helps raise balance sheet asset values whilst liabilities remain the same. The problem however is that eventually demand is crimped by higher interest rates, resulting in a market-value collapse. The exception is of course precious metals stocks.
4. Derivatives are a more risky form of investment in a credit crunch. You might be thinking that we are through that phase of the market, but there will be still one further credit crunch in a few years when inflation really bites. In these circumstances derivatives which carry a counter-party risk are not a good idea. You can use derivatives like CFDs as a minor part of your portfolio, but don't get silly.
5. Cash: It is silly to sit on cash because it will be eroded by inflation, and its not safe. Better to buy tins of canned food or cereal for a few months if you are fearful. At least the price of foodstuffs will rise in value (as long as it is not perishable).
6. Precious metals: You can certainly buy precious metals and store them in a safety deposit box, or but Exchange Traded Funds. Just make sure its safe, and you know what you are buying. Read the fine print. Some of these ETFs are leveraged into derivatives. You need to know those things. The best entry is silver, gold, platinum, palladium. Palladium is particularly low at the moment.
7. Business: There are things you can do to improve your business. If you have a good position in the market I would recommend investing in cost-reduction expenditure. Apart from being a deduction from income, it will place your business in a stronger position to whether any downturn. But you need to be confident that you can whether the recession. If you are marginal now, I'd be reluctant to invest more.
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Andrew Sheldon www.sheldonthinks.com
1. Bonds: People like to place money in bonds because they are considered safe. I would discourage investing in long-dated bonds because inflation is going to erode the value of them in future.
2. Property: Property is of course a tangible asset class so we would normally expect property prices to rise with inflation. This is however not true if the property market is over-leveraged, as it is in most Western countries. The exceptions are Japan and the Philippines. In these countries you can safely buy property. In Japan particularly the yields on property can be particularly good in suburban areas. In Western countries, its harder to find low-priced property because the bubble swept most markets. I would restrict your investments for a few years until inflation has knocked a few highly-geared home owners out of the market, whether because of rising interest rates or a job loss. Rural property makes the most sense in depopulating towns, unless there is some fundamentals reason to buy elsewhere.
3. Shares: Stocks will initially benefit from a little inflation because it helps raise balance sheet asset values whilst liabilities remain the same. The problem however is that eventually demand is crimped by higher interest rates, resulting in a market-value collapse. The exception is of course precious metals stocks.
4. Derivatives are a more risky form of investment in a credit crunch. You might be thinking that we are through that phase of the market, but there will be still one further credit crunch in a few years when inflation really bites. In these circumstances derivatives which carry a counter-party risk are not a good idea. You can use derivatives like CFDs as a minor part of your portfolio, but don't get silly.
5. Cash: It is silly to sit on cash because it will be eroded by inflation, and its not safe. Better to buy tins of canned food or cereal for a few months if you are fearful. At least the price of foodstuffs will rise in value (as long as it is not perishable).
6. Precious metals: You can certainly buy precious metals and store them in a safety deposit box, or but Exchange Traded Funds. Just make sure its safe, and you know what you are buying. Read the fine print. Some of these ETFs are leveraged into derivatives. You need to know those things. The best entry is silver, gold, platinum, palladium. Palladium is particularly low at the moment.
7. Business: There are things you can do to improve your business. If you have a good position in the market I would recommend investing in cost-reduction expenditure. Apart from being a deduction from income, it will place your business in a stronger position to whether any downturn. But you need to be confident that you can whether the recession. If you are marginal now, I'd be reluctant to invest more.
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Andrew Sheldon www.sheldonthinks.com
