Investing is a long-held financial strategy aimed at building wealth and retiring comfortably. However, constructing and managing a portfolio with inflationary pressures is difficult to do alone. Sound investing strategies change as the economy does and varies among age groups and goals.
The Inflated Economy
High inflation erodes the purchasing power of money. During inflationary periods, the Federal Reserve enacts contractionary policies to control economic growth and inflation. The Fed may increase interest rates to decrease demand for mortgages. It may also ease government spending and raise banks’ reserve requirements to decrease the supply of money in circulation.
Portfolio Management
Strategies for investing in the stock and bond markets shift during inflationary periods but still vary depending on the investor’s needs. Certain investors might buy stocks that are increasingly undervalued if their goals align. Buying more Treasuries might hedge the portfolio while interest rates are high. Particularly, Treasury Inflation-Protected Securities (TIPS) demand heightens because they are indexed to inflation.
In a volatile economy, utilizing a dollar-cost averaging investment technique involves buying shares at regular time intervals regardless of the business cycle. Further, certain industries have historically performed better than others in economic downturns, but past performance does not indicate future results. A financial advisor can help investors manage their portfolios in such a macroeconomic environment with diversified investment approaches to minimize market risk.
Getting Started
Considering their needs and goals, investors should consult a financial advisor before making investment decisions. For those seeking professional investment advice, the experts at First State are adept at building portfolios in economic uncertainty. For a free consultation, contact us at (918) 492-1361.
This overview is for informational purposes only and is not a recommendation. It should not be the sole deciding factor in making an investment. Investing is a risk and, as with all risks, a positive return is not guaranteed. Past performance does not indicate future results.