SHOULD I INVEST IN THE STOCK MARKETS DURING PERIODS OF INFLATION?

by Michelle Hung

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Life is just a hot mess right now. Supply chain disruptions.

A war in Europe. The impact of Covid-19 still lingering. This has been hurting our wallets. 

The cost of everything, especially food, has been (and will continue) to increase, which really sucks. 

Not to mention the quality of our food has also deteriorated. 

So, how can we make this better for ourselves? 

How do we combat inflation? Well, the stock markets is your hedge against inflation. 

This is why, theoretically speaking

When cost of inputs, like raw materials, transport, etc. rise, companies must absorb these costs.

But they will pass on the rise in costs to consumers, making stuff more expensive for us.

This reduces our ability (and maybe willingness) to buy stuff.

As a result, this will impact companies' earnings because people are spending less. Theoretically speaking.

So, now the stock markets are EXPECTING lower earnings in the future. 

Lowered expectations for future earnings will negatively impact stock prices.

In the short-term, that is.

Eventually this all balances out and we won’t know the impact on companies’ earnings until AFTER the fact.

So what now?

You’ll experience some volatility in your portfolio, but no need to worry about the value of your portfolio being eroded by inflation – because companies would have raised prices and it would be reflected in their revenues/earnings.

That means, your stock portfolio is hedged for inflation.

Continue to invest, hang on to your investments, and live your life.

You can even ignore everything I just said. 

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