Inflation is a scary word. Everyone all but panics when the word is mentioned. But during inflationary times it is even more important than ever to stay invested in the markets.
Simply put inflation means prices are going up. The degree of inflation is the key because prices are almost always going up. When inflation or the consumer price index is rising 1% or 2% inflation is pretty tame although it still means your wages can buy less this month than last month or a year ago. However, when prices start jumping 4% or 5% or more than it gets downright scary.
During inflationary times the markets can react in different ways just as you can react in a variety of ways. The markets may tank because the Wall Street gurus fear the economy is going to bust or it may soar right along with the inflationary price spiral. Some investors will try to ride a climbing market while others will head for safety in precious metals, bonds or even cash.
The important factors to keep in mind are simple:
• Your buying power is going down as inflation goes up and stays up.
• Investing that equals or beats inflation is the only way you can maintain your buying power.
The challenge to investing in inflationary times revolves around that ‘ol phrase, “Jack be nimble, Jack be quick.”
If you are a long-term investor and only check your portfolio every few months, then you probably should switch to conservative but safe holdings that won’t tumble when inflation is checked. Positions like high yield dividend stocks, ETFs or mutual funds; utilities, or perhaps a bond mix and maybe precious metals.
If you can spend 30 minutes watching your portfolio every week or two then you should be able to continue investing safely and even moderately aggressively with the right software package to guide you. Remember, if inflation is running at 4 – 5% then you need to exceed that figure to stay ahead of the game. While you may have strategies that analyze the ticker symbols over different time frames you should probably watch or have strategies with both short and medium time frame analysis so you catch sudden movements while watching the overall picture for a bit longer viewpoint.
An important key to successful investing in inflationary times is to keep your emotions in check. You may have an ETF or stock that has been rising to dizzy heights and your software program signals ‘sell’ but you think “well the way it has been going it is going to bounce right back up and keep soaring.” Wrong attitude; greedy desires result in dramatic loses, most especially during sky busting inflationary markets. Pay attention to your sell signals and take profits. You can always invest all or part of your gains into another position for even more future gains. If you really like that ticker symbol that your program now says to sell, at least sell all that equals your original cost plus enough shares to equal a decent profit.
Again, the key to investing, whether in inflationary times or not, is to be flexible and to take profits without being greedy. In this manner you will not only stay ahead of inflation but make it work for you and increase your wealth, your retirement account and spending ability.