Fiscal spending proposal has the potential to overheat a U.S. economy that is already struggling to keep up with record demand.
Rising inflation has Americans worried about their future purchasing power and their retirement plans, according to CNBC. Yet there are some opportunities to make and save money in this environment, as well as protect your investments.
With consumer prices up in October 6.2% from the year prior, inflation is too high and appears to be a clear and present threat to America pocket books and wallets.
With inflation at its highest level in several decades, economists are concerned that the pending multi-trillion dollar fiscal spending package will further overheat a U.S. economy already struggling to keep up with demand. The concern is that the package would exacerbate more fundamental supply constraints in the economy, driving up inflation over the longer term.
Thus, cash in the bank or in low-yielding bonds aren’t the best option in an inflationary environment when the stock market has gained nearly 27% this year, explains financial advisor Delano Saporu, CEO of New York-based New Street Advisors Group. Inflation reduces the value and purchasing power of that cash.
“If you are sitting on too much cash, you are doing yourself a disservice,” Saporu said.
Thus, it is recommended that you keep only enough cash to cover expenses for 12 months to 24 months. This way, if inflation becomes a big issue and causes stocks to tank, you aren’t forced to sell in a down market.
Investors do not love high inflation, which can hurt the growth prospects of high-rising tech stocks, among others. Because, higher prices can result in higher interest rates, which can lower the appeal of growth stocks compared to less risky alternatives.
The stock market tends to beat inflation given its rate of return, although growth may be slowed during inflation periods. Yet investing is for growth, not inflation hedges.
Since inflation is typically considered a result of a strong economy, financial experts recommend cyclical companies, which follow the cycles of an economy. That means sectors like industrials, energy and consumer discretionary. Also, gold, which is near five-month highs, and possibly cryptocurrencies are seen as inflation hedges.
References:
- https://www.cnbc.com/2021/11/16/as-inflation-rises-here-are-opportunities-to-make-and-save-money-.html
- https://www.forbes.com/advisor/investing/inflation-worries-2021/
- https://www.bloomberg.com/opinion/articles/2021-08-12/inflation-worries-it-may-finally-be-time-to-bring-them-back