[Epoch Times June 6, 2021](Epoch Times reporter Lin Ruo comprehensive report) The US inflation rate has surged recently. In the face of rising prices, how can individual investors protect themselves?
“Commodities, real estate, value stocks, inflation-preserving bonds (TIPS) and bank loans can all be good places to get protection from the terrible’I at the beginning’ (referring to inflation).” LPL According to Ryan Detrick, chief market strategist at LPL Financial.
In a “how to invest in high inflation” form, LPL company also made a sub-reminder.
1. real estate: Real estate can increase in value due to inflation, and homeowners can increase rent; at the same time, in the previous period of rising inflation, real estate investment trusts have also provided considerable returns.
2. Commodity: High inflation rates often depreciate the dollar. Historically, commodities have performed well when the dollar is weak.
Some experts point out that the prices of various commodities are now close to a year or even the highest point in history, but investors also need to consider investment diversification, and they are not sure that some commodities will perform well.
3. stock: LPL believes that if you want to win the protracted battle against inflation, you need to continue to buy stocks. Since 1950, the average annual inflation rate based on the consumer price index has been 3.5%, while the annual return rate of the S&P 500 has been above 9%.
Value stocks such as materials and energy companies tend to benefit from high inflation, and rising interest rates tend to drive higher-margin financial stocks.
4. Inflation-protected bond(TIPS): Fixed bills paid by traditional bonds usually depreciate with inflation, while investing in TIPS (Treasury Inflation-Protected Securities) is different. Its principal increases with inflation (or decreases with deflation), and interest payments will also increase with the consumer price index (CPI).
Several factors that need to be considered are that TIPS yields are low, which are divided into 5-year, 10-year and 30-year periods; when interest rates and inflation rates are not rising enough, it is time to withdraw from TIPS.
5. Bank loan: Different from other fixed incomes that are affected by high yields, bank loans have considerable advantages in an environment of high interest rates and high inflation. Some experts also pointed out that bank loans have a short period and the coupon rate will be reset as short-term interest rates (also called floating rates) rise.
Hedging inflation gold vs cryptocurrency
As far as other alternative assets are concerned, some wealth managers prefer to use gold to hedge against inflation rather than cryptocurrencies such as Bitcoin, which has plunged again recently.
According to data from the asset management company Glenmede, since 2010, the S&P 500 index has fallen by 5% or more in 10 trading days, gold has suffered the same blow in only one day, and Bitcoin has 455 transactions. Two-way fluctuations of 5% occurred daily.
Michael Reynolds, vice president of investment strategy at Glenmede, pointed out that in the past two bear markets, Bitcoin has fallen not less than the S&P 500 index, or even more than twice it. When investors most needed protection, Bitcoin didn’t work.
“There is too much speculation in that corner of the market (cryptocurrency), which is not acceptable to us.” Reynolds said.
As physical gold has high barriers to entry and is difficult to purchase, experts recommend buying high-quality gold ETFs (index stock funds) with track records.
Will prices keep going up?
According to data from the US Department of Labor, the CPI in April 2021 rose 4.2% from the same period last year, higher than the 2.6% in March, the highest annual growth rate since September 2008.
On Friday (June 4), Wall Street turned its attention to another key indicator of inflation: the personal consumption expenditure index (PCE) in April increased by 3.1% over the same period last year (except for unstable factors such as food and energy) . When the Fed makes decisions, the preferred measure of inflation is PCE, not the more well-known CPI data.
Prolonged inflation may force the central bank to raise interest rates sooner, thereby pushing up the borrowing costs of consumer loans such as housing mortgage loans. As a result, some Americans worry that the economy will regress to the hyperinflationary 1970s.
However, most economists believe that soaring prices are only a by-product of restarting the economy and should be moderated by next year. The reason is that there have been multiple forces that have suppressed inflation for more than a decade, including technological innovation, economic globalization, and increased productivity.
Adam Lampe, CEO and co-founder of Mint Wealth Management, an investment consulting firm, said, “Moderate inflation is not a big deal. If inflation does exceed expectations, the Fed still has a chance to control it.”
Patrick Healey, the founder and president of Caliber Financial Partners, a financial planning company, also said that inflation is inevitable when the government spends so much money on stimulating the economy; he recommends that investors “make some hedges in their investment portfolios.”
Editor in charge: Li Yuan#
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