Will inflation rise to 10% this year? In any case, early analysts are counting on it. The reason given is the constant increase in energy prices. In particular, oil and natural gas and therefore, among other things, visiting the pump is likely to remain very, very expensive. But food prices are gradually starting to rise as well.
If inflation were to rise to 10%, it would probably only be a short-term effect, an extreme outlier. But one that savers and consumers alike should take seriously. After all, the higher prices are usually there to stay.
In particular, your own assets deserve protection. But with such value, only one thing helps…
Inflation at 10%? Think long term!
If inflation is 10%, there are not many options left across the board. Perhaps oil reserves are a vehicle for short-term relief. Or individual assets that may increase in value. But in essence, there is one thing to do with a diversified stock portfolio: think long term.
That doesn’t just mean that inflation can affect the markets. No, but also that you must seek a timeless balance. It may not be possible to offset inflation in 2022. But until 2025 to offset this effect and achieve a positive overall return by 2030 or 2035. This should be able to offset inflation.
With extreme inflation, there is little to help. Conservative dividend stocks with a 2% or 3% dividend yield seem like a drop in the ocean in the short term. Even average ETF returns only work to a limited extent as compensation. In general, therefore, it is important to view combating this threat to one’s assets as a long-term process.
However, a rebalancing with strong quality stocks is possible. Strong pricing power, higher operating growth, dividend growth, or even broad market development over longer periods of time should help keep inflation from terror for many years to come.
The same applies here: Don’t think short term
If inflation rises to the 10% mark, that would be another extreme development. However, it further shows how crucial it is to protect your own assets. In the long term, this is still possible with good quality yields and stocks. Due to such forecasts, it becomes increasingly important not to expose savings to this unprotected devaluation.
At the moment, market conditions are not exactly stable overall, the Ukraine conflict and associated uncertainty is an added burden. But even that can increase the long-term return potential of many stocks and thus lead to a better balance.
The article Inflation at 10%? So only one thing helps! first appeared in The Motley Fool Germany.
Motley Fool Germany 2022