Investing: Seeking Shelter in Inflationary Times
Nov 23, 2022
A confluence of factors such as supply chain disruptions during the pandemic, surging U.S. consumer demand, and the impact to oil prices stemming from the Russia-Ukraine war have led to rising prices across the board. With the current U.S. annual inflation rate at 8.6%, (the largest annual increase since December 1981), it’s of vital importance to make sure that you’re properly invested so that inflation doesn’t wipe out any gains in your portfolio.
It Doesn’t Pay to Be Invested in Cash
Savings accounts, money-market funds, certificates of deposits, and other types of cash investing won’t cut it in these high inflationary times. Current CD rates are around 2% for example. You want to ensure your money is invested so that you can beat, or at the worst, keep up with inflation. Investing in a portfolio of stocks has historically been a way to outpace inflation. The average annualized return for the S&P 500, an index of 500 leading publicly traded companies in the U.S., since its inception in 1926 through year end 2021 is 10.4%. If your employer offers a company match in your 401(k) or other retirement accounts, that is essentially “free money” that you also have to invest in stocks that can outpace inflation.
Looking to the Energy Sector
In addition to investing in a broad stock market index such as the S&P 500 to offset rising inflation, you could also choose to invest in certain sectors of the market. Oil prices have been rising, and energy was the only sector of the market to post gains in 1H22, up 31.7%. While it remains to be seen if that will occur again in 2H22, if you wanted energy exposure in your portfolio because you believe oil prices will continue to remain high, one way to be position for that is to buy an energy related exchange traded fund.
Don’t Panic
Prices in the U.S. for goods and services are rising at a rate faster than many Americans have seen in a long time. Through positioning your investments wisely in stocks, making sure your portfolio isn’t sitting in cash investments, and using any employer-provided matches in your retirement accounts, you’ll be set to come out on top of inflation over time.
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