Time to rebalance and diversify
Saving for the long term might be challenging in the present context of rising prices and interest rates. Although recent markets volatility may have alarmed some investors, experts advise sticking to a steady investment strategy, especially for those with longer time horizons.
Investing in turbulent markets entails some risk. Despite this, investors may take steps to safeguard and even improve their portfolios during market downturns.
Investing should always be a long-term process, but while inflation is rising, it is unquestionably a riskier time to be in shares. Diversification and rebalancing should be considered by investors. For example, you could want your investments to be distributed throughout a variety of asset classes, such as stocks, bonds, and other securities.
Stocks shouldn’t be hurt with inflation on the long run
With inflation in the United States surpassing 7% for the first time in 40 years and the yield curve inverting recently, many investors are questioning if they should adjust their investing approach.
When inflation surpasses 7%, equities in the United States return 7.3 percent on average during the next year, compared to 10.3 percent before high inflation. And, since August 1978, when the yield curve inverted, the median inflation-adjusted return on U.S. equities has been only 4.7 percent, compared to 9 percent in every previous period.
Few companies that usually outperform market in time of high inflation
Newmont is the world's top gold producer, and gold prices are expected to rise 6.8% in 2022. Gold is a traditional inflation hedge, so it's no wonder that Newmont's stock is up 31% year to date.*
Performance of Newmont Corporation stock for past 5 years. Source: tradingview.com
Newmont management is emphasizing all the correct things, according to analyst Michael Jalonen, including reinvesting in the business, keeping a healthy balance sheet, and returning cash to shareholders. Production and expenses are expected to improve each quarter through the end of the year, according to Newmont management. The stock of NEM, which ended at $82.12 on April 8, has a "buy" rating and a $75 price target from Bank of America.
Johnson & Johnson
Medicine will always play a vital role. Furthermore, prior to everyone learning the geopolitical lesson from Putin's Russia, Americans realized the dangers of outsourcing fundamental healthcare requirements to nations such as China. As a result, customers may be more interested in this sector, especially because the pandemonium of 2020 is still vivid in their minds. The stock of JNJ, which ended at $180 on April 13, has an "outperform" rating and a $181 price target from Goldman Sachs.
Performance of Johnson & Johnson stock for past 5 years. Source: tradingview.com
With inflation in the United States reaching multi-decade highs, it's a smart idea to invest in ultra-reliable dividend equities. If their effective dividend yields are high, that's an added plus. IBM was formed 110 years ago and has since survived two world wars and several economic crises. Even in a fast-changing commercial climate, the firm was constructed to survive. A fire sale can provide you with all this long-term security and guaranteed future growth. IBM's stock has dropped 14%
Performance of International Business Machines Corporation stock for past 5 years. Source: tradingview.com
in the previous six months, and it currently trades at only 14 times free cash flow and 12 times forecast earnings. Taking advantage of today's bargains appears to be a fantastic method to counteract historically high inflation rates. The stock of IBM, which ended at $126 on April 13, has a "neutral" rating and a $143 price target from Societe Generale.
Overview report prepared by Jozo Perić, Head of Portfolio Management Department and Investment Research Department CapitalPanda
[A] BEA: https://www.bea.gov/news/2022/personal-income-and-outlays-february-2022
, , ,  Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or based on the current economic environment which is subject to change. Such statements are not guaranteeing of future performance. They involve risks and other uncertainties which are difficult to predict. Results could differ materially from those expressed or implied in any forward-looking statements.
* Past performance is no guarantee of future results.