There has been a sudden surge of inflation in the last few weeks. Although most specialists agree that it is only the return of the wave, that took place in the other direction, when the pandemic hit the world, it is no reason not to protect your portfolio. Here is how the inflation affects the stock market, and what you can do to protect yourself from losses.
New Traders: Understand Inflation and its Repercussions
During the lockdowns, caused by the sanitary crisis, many people looked into the various trading platforms UK, wanting to come into a market that seemed to be blossoming and bringing in new revenues for all. But as the real world takes over, and the stock markets become affected by the various effects it brings along, these new traders have to be aware of what something like inflation can do to stocks, so they can protect themselves accordingly.
Since there isn’t one rule for all the stocks being traded, all of them should be evaluated separately, and to their own merits, in the face of inflation. Let’s first remember what inflation is: It is the rate at which money loses its purchasing power. In simplified words, you can not buy today the same quantity for the same price you paid yesterday. What that means to stock at first, generally speaking, is the more inflation gains, and the more stock value goes down. But in the long run, prices to consumers also rise, which brings in more revenues and stock prices go back up. In other words: Do not panic, and keep the stocks you have, if they already went through losses.
Hedge against Inflation
When you try to hedge against inflation, it means that you are looking to move your capital into assets that will resist better than others, to the depreciation of the value of money. If you find a few jewels, they may even grow at a higher rate than inflation. But that is certainly not easy; not even for professionals of the trade.
The best solution, in times of inflation, is to diversify your portfolio. It will help balance things out and ride through the inflation period. The safest protection tool, in the stock market, are commodities. Gold has been a long-time safe-haven for traders, during such periods. There is no reason it wouldn’t be still, today. But it is wise to also look at other assets, that could bring in more wealth. For a good variety of commodities in your basket, look for ETFs (exchange traded funds).