High inflation: how to minimize risks for the investor
Lately, investors have been extremely cautious in their market decisions. They are waiting for action from the Fed – whether it will raise the key rate or leave it unchanged. Many are frightened by the high rate of inflation, which is quite real and could lead to losses. However, according to financial blogger Leonid Kofman, if a portfolio is properly formed and invested in the right assets, an investor may not be afraid of market fluctuations.
Any news of a new interest rate changes quotes, which is especially painful for the S&P 500, NASDAQ and Dow Jones indices. Meanwhile, it is not clear yet whether the Fed’s statements are real steps or they are made to analyze the processes on the market. One thing is certain – in case of the Fed’s refusal to buy the assets and revise the rate upwards, the yields of the 10-year government bonds will start rising. Thus, the funds will actively leave other sectors and accumulate in these securities. This, in turn, will cause dumping of stocks and significant falling of indices.
The FRS actions are dictated by the increase of the inflation rate. Besides, there is a rally in commodity markets, which is clearly seen on the cost of corn, copper and steel. According to the analyst, trends in the agricultural sector, as well as in the segment of industrial metals show an increase in prices. And that’s when the Fed will have to decide to raise the rate, which will activate the fall in the markets. The investor should be ready for such a turnaround, and it is wise to diversify the portfolio in advance to minimize losses, and ideally – to earn on inflation.It is important to choose assets to invest in, and gold is an excellent solution. There are two ways to invest in this asset – by investing in mining companies or special funds, such as the S&P Metals & Mining ETF fund.
In addition to gold, you can consider investing in agricultural products. You can do this by investing in the Invesco DB Agriculture ETF. This fund analyzes indices for soybeans, wheat, corn, coffee, meat and other sought-after products. However, this option is only available to qualified investors.
Another way to benefit from rising inflation is to bet on companies that deal in consumer goods. Manufacturers of this group of products can easily outpace inflation by raising prices for consumers. And consumers will not refuse to buy hygiene products, powders and diapers, which means the collapse of such companies is not threatened. However, in this case there is a nuance – the growth of the key rate stimulates the growth of the cost of credit obligations. Therefore, before investing in such companies, it is advisable to study their fundamentals.