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How to invest during stagflation


What is the best investment during stagflation?

Historically, the categories of stocks which offer the greatest chance of gains during stagflation include health care, food, energy and utilities. The continued global demand for energy often means that foreign nations will continue to purchase from global suppliers even if the U.S. domestic economy is faltering.

How do you profit from stagflation?

The key is to focus on investments that earn a profit during stagflation. Avoid keeping your cash tied up in corporate or government bonds. The interest rates won’t keep pace with inflation.

How does stagflation affect real estate?

Stagflation may also be a reason to delay making large purchases, such as buying a home, especially if the area where you live is experiencing a real estate bubble. However, if you are employed and have money to spend, you should continue making regular purchases.

What happens to interest rates during stagflation?

In a period of stagflation, however, pushing down interest rates to encourage spending will exacerbate inflation, ultimately making matters worse. Instead, stagflation demands a much more farsighted approach of reforming fiscal policies.

What happens to gold in stagflation?

Unfortunately for gold, Paul Volcker became the Fed Chair in 1979, quickly slowing the rapid growth of the money supply and allowing interest rates to rise. As a consequence of his decisive actions, inflation declined, while gold topped out and entered a bear market. But if stagflation happens again, gold should gain.

Why is stagflation bad?

Stagflation tends to increase unemployment and prices, making it difficult for people to buy the goods they need and find new economic opportunities. Stagflation is also bad because it is so difficult to solve. A typical solution for poor economic performance is to boost government spending.

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What is stagflation caused by?

Stagflation, in this view, is caused by cost-push inflation. Cost-push inflation occurs when some force or condition increases the costs of production. This could be caused by government policies (such as taxes) or from purely external factors such as a shortage of natural resources or an act of war.

Where can I invest in a deflationary environment?

Inflation hedges include growth stocks, gold and other commodities, and—for income-oriented investors—foreign bonds and Treasury Inflation-Protected Securities. Deflation hedges include investment-grade bonds, defensive stocks (those of consumer goods companies), dividend-paying stocks, and cash.

What is the meaning of stagflation?

Stagflation is characterized by slow economic growth and relatively high unemployment—or economic stagnation—which is at the same time accompanied by rising prices (i.e. inflation). Stagflation can also be alternatively defined as a period of inflation combined with a decline in gross domestic product (GDP).

How long did stagflation last?

The word stagflation didn’t even exist until the 1970s. From 1958 to 1973, the United States experienced what’s known as the “Post-War Boom.” Gross annual products in Western nations grew by an average of 5 percent annually, fueling a slow but steady rise in prices (inflation) over the same period [source: Cleveland].

What are the effects of stagflation?

Effects of Stagflation

Stagflation results in three things: high inflation, stagnation, and unemployment. In other words, stagflation creates an economy characterized by quickly rising prices and no economic growth (and possibly an economic contraction), which brings about high unemployment.

What assets perform well in stagflation?

Commodities like precious metals, industrial metals, and other industrial and agricultural goods can help you weather a stagflation period. Exposures to commodities are much easier to access in modern times than they were in the 1970s, and the crypto industry has currencies, securities, and commodities too.

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