How to Invest to Fight Inflation
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What is the main topic discussed in this episode?
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Future Money Briefing for Wednesday, November 3rd.
How is rising inflation affecting household budgets and retirement savings?
I'm J.R. Whalen for The Wall Street Journal. Inflation is eating away at household budgets, but it's also a growing concern for people with stock portfolios and 401k accounts, many of whom are rethinking their investment strategy to protect against rising prices. But is that the right move?
I think you want to be very cautious about making a drastic, certain change on the basis of an extreme, uncertain forecast.
That's WSJ Intelligent Investor columnist Jason Zweig. He's seen this inflation movie before and how the markets typically react.
Should investors overhaul portfolios because of inflation fears?
We'll call on him for suggestions as to where investors should and should not put their money as protection against inflation. That's after the break.
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Why does Jason Zweig warn against making drastic investment changes now?
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Does taking more risk typically pay off in an inflationary environment?
Inflation has been virtually non-existent for the past several years, but it's now running at nearly 5.5%, the highest rate in more than a decade. That's putting a strain on your pocketbook, but what about your stocks and your 401k investments? What moves should you make to protect against inflation, if any? Jason Zweig wrote about this for the Intelligent Investor column in the WSJ, and he joins me now. Jason, thank you so much for being with us.
Great to be with you, JR.
So Jason, given this high level of inflation and how some market watchers are predicting it to continue, some investors might be thinking about overhauling their portfolio simply out of fear. What should they keep in mind before actually doing that?
Well, the most important thing to bear in mind is that fear is a great investment for the people who sell it and historically a terrible investment for the people who buy it. And what I mean by that is if you're a market forecaster or a newsletter writer, somebody who works at a big brokerage firm or bank, you can motivate a lot of investors to send a lot of money your way by scaring them. But the people who get scared usually don't earn very good returns over the long run because over time it pays better to be an optimist than a pessimist. I think you want to be very cautious about making a drastic certain change on the basis of an extreme uncertain forecast.
Will value stocks or growth stocks perform better if inflation continues?
I mean, inflation might continue to heat up or it might not. But if you overhaul your portfolio in ways that are disruptive, then if the inflation doesn't materialize, you will have done real damage to yourself. And if it does materialize, you should have time to adjust along the way.
Okay, so let's talk about how to invest responsibly during rising inflation. As people see higher prices eat away at their paycheck, they might think about the principle of more risk means more reward. Does that apply in this economic environment?
The first thing to realize is that if interest rates go up along with inflation, then the riskiest assets, the ones that won't pay off for the longest period of time, are not likely to do the best. And that's because when interest rates rise, you need a sooner payoff to justify deferring your reward for the longer run.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:00–0:38
2
How is rising inflation affecting household budgets and retirement savings?
0:38–1:13
3
Should investors overhaul portfolios because of inflation fears?
1:13–1:24
4
Why does Jason Zweig warn against making drastic investment changes now?
1:24–1:58
5
Does taking more risk typically pay off in an inflationary environment?
1:58–3:27
6
Will value stocks or growth stocks perform better if inflation continues?
3:27–4:30
7
Are commodities and gold reliable hedges against inflation?
4:30–6:33
8
What practical inflation-protection options should retirement savers consider?
6:33–9:36
Speakers
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