Whether we head into hyperinflation, stagflation or recession, it is always good to be prepared for more of the same-rising commodity prices, low supply, high demand and a low labor force wreaking havoc on your wallet. Inflation especially hurts people on fixed incomes. Wage growth can partially offset inflation as well, but not every job or industry will have the same response and the average wage growth can be skewed by big increases at the top.
Here are some tips on ways to help reduce the effect of inflation from practical ideas to investments to keep an eye on.
PLAN YOUR SHOPPING IN ADVANCE
Check your inventory and draw up a shopping list before you go to the market. Make a list of items you need (try not to buy what you don’t need) and stick to the plan. Never go grocery shopping on an empty stomach. Take hard cash instead of your credit card.
Tax rules allow investors to adjust the cost of an asset to inflation during the holding period. Talk to your accountant.
Categorize everything into either variable rate or fixed rate.
Any debt with a variable rate has the potential to increase your payments in a period of higher rates. Remind your boss that a 2% raise in a year with 3% inflation is not a real raise.
Once investors begin to worry about rising inflation, we can expect gold and silver to jump in price. Luckily, ETFs such as (GLD) and (SLV) make the metals easy to own compared to buying them in physical form.
Food and soft commodities
We have been a fan of soft commodities throughout the pandemic, as supply chains and industry bottlenecks plagued this sector. However, rising inflation brings a whole new light and reason to use them as a hedge.
By taking the Invesco Agricultural Fund (DBA), we can see if recent lows can hold as new support at $17.54. However, if soft commodities start to move, we can wait for a phase change over the 50-day moving average at $18.50 to give a stronger trend signal. Though DBA offers a good glace into this sector, we also watch individual commodities such as sugar (CANE), coffee (JO), corn (CORN), and more.
Take advantage of the low-interest rates NOW. Borrow as much as you can on real estate or any hard asset at these low rates and sit tight. Debt also tends to benefit from inflation since the money you owe is not indexed to inflation, so you end up paying off the debt with less valuable dollars.
The general strategy for mitigating inflation is to have more assets that will tend to float with the overall increases in price levels. Equities, commodities, gold, real estate or other hard assets. They may not all go up in sync, but will likely all go up with the overall price level.
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- S&P 500 (SPY): New highs.
- Russell 2000 (IWM): Watching to hold 221.
- Dow (DIA): support 341.82. Resistance 348.65.
- Nasdaq (QQQ): Holding near highs.
- KRE (Regional Banks): Needs to get back over 63.63.
- SMH (Semiconductors): 245 main support area.
- IYT (Transportation): 257.67 support.
- IBB (Biotechnology): 159 support area.
- XRT (Retail): Closed over the 50-DMA at 94.29.
Director of Trading Research and Education
Assistant Director of Trading Research and Education
Mish Schneider serves as Director of Trading Education at MarketGauge.com. For nearly 20 years, MarketGauge.com has provided financial information and education to thousands of individuals, as well as to large financial institutions and publications such as Barron’s, Fidelity, ILX Systems, Thomson Reuters and Bank of America. In 2017, MarketWatch, owned by Dow Jones, named Mish one of the top 50 financial people to follow on Twitter. In 2018, Mish was the winner of the Top Stock Pick of the year for RealVision.