Sunday, November 10, 2019
Investments for Inflationary and Deflationary Environments Essay
Inflation is the raise of a price level of good and services over a period of time. When there is an inflation each unit of currency buys fewer goods than it was possible before. Inflation affects can be both positive and negaive. Positive effect inclule ensuring that central banks will ajust real interest rates and encaurage investment in non-moneaty capital projects and the negative side is that people hav uncertainty over future and can damage investments and savings. Inflation can be cosed because of big amount of money supply. So now what are the best investments during inflation? The good thing is that there are some places there money investments will be secured. Important during inflationary environment is to avoid having cash, it is good not to hold cash for long time and allocate it into other assets and investments. It is very good to invest cash into gold or other precious meas. It always casts a lot after the inflation or crises. Gold is seen as a hedge against uncertainty and store of value. Investing into gold is possible to buy gold or just to invest into company which are mining gold. It is profitable to invest in crude oil, a lot of people invest into it as a protection against inflation. Oil is inelastic supply, so any decrease or increase in price would not result the increase or decrease in supply. There is many ways investing into crude oil with its con and pros. If you want to invest in short fixed income, you should avoid the US treasure because they may underperform. When yields start to raise bond price will fall. This investment provides a return in the form of fixed periodic payments and eventual return of principal at maturity. Investing into technology is also very good both at deflationary and inflationary environment. Does not matter on an environment technology is in demand and will continue to evolve. It is good and profitable to buy treasure protected securities so called TIPS, it gives a safety of the government bonds during inflation. Deflation is the opposite of inflation, decrease in the general price-level of goods and services. Deflation occurred when inflation rate falls below 0%. Deflation increases the real value of money. While deflation cash is Ã¢â¬Å"kingÃ¢â¬ . It the rule number one, cash is one of the best and the most safety investment at the deflationary environment. Pay off debts is also very good while deflationary time. It is a period when every single dollar matters, each dollar can be profitable in future. Companies may have problems while deflation, so it is very good to invest in companies which have ideal short selling targets. Buy also high quality dividend paying stocks. While most of the firms will lose pricing power large cap high quality companies will dominate their industries and will be able to maintain pricing power. Seek companies with pristine balance. While deflation, house prices fall, as such it is better or rent rather than own. While deflation technology will still be in demand. The technology was announces as one of the best areas to allocate capital in high quality equities. As we already know TIPs are long-term protection while inflationary environment. But there is an opinion that deflation will lead to inflation after a period of time. This is an early protection in deflationary environment to avoid problems in future.