Tumultuous Times Call for Consideration of Investment Strategy Options
The current financial climate, characterized by surging inflation, rising interest rates, increased market volatility, a potential recession, and rising geopolitical tensions, has caused a great deal of uncertainty among investors. As a result, many are turning to cash, hoping to avoid further losses. However, this may not be the best strategy, especially given the current high inflation rate.
Why cash isn’t an ideal option
With inflation at its highest level in 40 years, keeping money in savings or CDs yielding low returns of 0.5% to 2% will likely result in a loss of value. While it’s important to set aside a sufficient amount of cash for emergencies, anything beyond that could harm long-term investment performance.
Investment options to consider during these tumultuous times include diversifying your portfolio, rethinking bonds, looking to high-quality stocks, investing in commodities and real assets, or simply doing nothing.
Diversification is still key to minimize risk
Diversifying your portfolio by investing in securities and assets with low correlation to one another is critical to achieving long-term investment performance. This will ensure that your entire portfolio doesn’t suffer if one investment performs poorly.
Time to rethink bonds
The long bull market in bonds has come to an end, with rising interest rates causing negative returns in 2022. Alternative options to consider include Treasury Inflation-Protected Securities (TIPS), floating-rate bonds with short-term durations, and the government-backed I bond, which has an inflation-sensitive yield of 9.62%.
Look to high-quality stocks
High-quality stocks, such as those with low debt, high gross margins, and strong global brands, tend to perform well in an inflationary environment. These companies are able to increase prices without hurting demand, and many also pay dividends that can help offset inflationary pressures on your portfolio.
Commodities and real assets
Commodities and real estate have historically kept pace with inflation. Investors can easily participate in these markets through exchange-traded funds, such as the SPDR Gold Trust or the Energy Select Sector SPDR fund, or through Real Estate Investment Trusts (REITs).
Despite its ups and downs, the stock market has always eventually reached new heights. For those with a long-term investment horizon, the market has historically rewarded patient investors.
Regardless of the investment strategy you choose, it’s important to discuss your concerns and objectives with a financial advisor before making any moves.
Looking for a financial advisor? Alpine Bank has a wealth management division.
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