Neither wealth nor the size of an investment portfolio mitigates the effects of inflation. The poor feel the deleterious effects sooner, but uncontrollable growths in operating expenses can cripple even giant corporations.
The stock market is an empowering means of maintaining real values of cash inflows. This investment route is egalitarian. It also allows an additive approach. Some of today’s most influential investors have made modest entries into a stock exchange not so long ago. The system of ADRs allows U.S. investors to buy stocks from countries where inflation may be lower than at home.
Four stock strategies can keep investors ahead of inflation:
1. Let the dividend track records guide stock picks. When did the corporation last skip a dividend? Does the past Return on Average Equity exceed the forecast rate of inflation?
2. Which stock has a Beta of around one? Does it belong to an industry with superior prospects in an inflationary environment? Can you sell this stock in future with a profit in real terms?
3. Focus on stocks which provide products and services related to child development. Pediatric drugs, clothes for growing children, and school stationery are examples of expenses that most consumers will not cut even in trying times.
4. Troll the stock market for reputed manufacturers of generics. Processed foods are examples of product categories for which consumers will move away from brands in order to save.
Every stock market index perpetuates a common misconception. There are always specific exceptions to general economic trends. A professional investor will employ systematic processes to make stock picks and stay ahead of inflation.
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