Inflation is a common occurrence when there are geo-political and economical instabilities in the world. It is marked by a decrease in consumer purchasing power and an increase in prices. For investors, inflation can mean loss or gain of profits depending on their investment plan and strategies.
Fortunately, there are plenty of ways that investors can mitigate inflation risks. For those new to the stock market, sources like Investing Strategy provide excellent advice on how to prepare for such situations. Purchasing the right type of stocks can be vital in hedging against inflation. With that in mind, here are a few types of stocks to buy in face of the inflation.
The S&P 500 stocks
There are a few different types of S&P 500 stocks that tend to do well in the face of inflation. First, there are companies that produce essential goods and services. These companies will often see an increase in demand as prices rise, since people still need to purchase their products.
Additionally, tech and communication companies are capital-light businesses and are often seen as inflation winners. Finally, companies with strong balance sheets—lots of cash and little debt—are usually better able to weather tough economic conditions.
Real Estate Investemnt Trusts
Real estate investment trusts, or REITs, are a type of stock investment that allows you to invest in real estate without having to actually buy or manage property. REITs are traded on major stock exchanges and can be bought and sold just like any other stock.
There are two main types of REITs: equity REITs and mortgage REITs. Equity REITs own and operate income-producing real estate, such as office buildings, shopping centers, apartments, and warehouses.
Mortgage REITs invest in mortgages and mortgage-backed securities. REITs must pay out at least 90% of their taxable income to shareholders in the form of dividends. As a result, they tend to have high dividend yields.
A Stock/Bond Portfolio
A stock/bond portfolio is a collection of investments, each of which represents an ownership stake in a company (stock) or a claim on the payments made by a borrower (bond).
The purpose of creating a stock/bond portfolio is to diversify one’s investment holdings, so as to minimize risk while still achieving an acceptable level of return. By owning a mix of stocks and bonds, an investor can reduce the overall volatility of their portfolio and mitigate inflation risks.
There are many different ways to construct a stock/bond portfolio. The most important decision is how to allocate one’s assets between the two asset classes. This decision should be based on factors such as investment objectives, time horizon, and risk tolerance.
Inflation-resistant stocks are those that tend to maintain or increase their value during periods of inflation. That’s why investors should do a lot of research before actually making any investments.