COVID was the pandemic of fear. Now there is the fear of inflation. Because locking down parts of whole economies for over a year brought upon us the biggest recession since the second world war.
A lot of people lost their jobs, companies went bankrupt. But some also profited (like eCommerce and food retail) and some of us did not even feel a difference.
Still, behind the scenes, states where pumping trillions of Dollars into the markets to prevent them from crashing. Further expenditures to help struggling businesses and individuals took place.
How to pay for all of that? Inflation.
I could now re-iterate what you read in the news.
But I want to give you a different perspective. I want you to give a straight forward way to deal with this.
Maybe not all of you know that I am a humble investor. Nothing big. I own a couple of stocks and I also day-trade.
Here is what I learned about crises:
Generally you can say that the market moves upward. If you invest long-term (buy and hold) you will be rewarded, if you choose to invest in fundamentally well established companies, diversify and actively manage your portfolio. But every ten years or so the market pulls back and you see a correction, for example in 2008/2009 and definitely last year.
Those are the times of the crash prophets. They will tell you that now the system will collapse, that economies will die, that a currency will devaluate and stop to exist and so forth.
Those (like Warren Buffet) who stood fast, profited in those times. Imagine you go into a shop and you can get all the premium brand stuff for half the price. But you need to believe that the markets will recover.
And still: when the crash prophets are backed up by the media and when you see the market going down – it is really, really hard to stay mentally strong. And you never really buy the dip.
Despite the news of inflation COVID and whatnot, look at the stock market indices: DAX goes up further and further, so does the NASDAQ, so does the DOW. If you bought some stuff last year around march, you would have made a nice profit.
Now back to inflation.
Is it likely that there will be an inflation? You bet. But certainly no hyperinflation, certainly no market crash or collapse of the system.
So what can you do:
- Invest in physical assets: stocks, real estate (and if you like: gold and bitcoin).
- Don’t hold too much cash
I personally like stocks. Why is it a good idea to be invested in stocks during an inflation? Companies have the possibility to remedy this to an extent, simply by increasing the prices for their goods and services. And the stock value is not influenced at all by the amount of debt a state has.
I do not like real estate, because I simply lag the experience with it and I fear that I buy some property that is over-appreciated.
That is all I have for you. Simply get out of cash and into physical assets and you will not be touched by inflation too much.
If you choose to believe the prophets or if you are convinced that a certain outcome will materialize – be my guest.
But at the very least back do not just bitch about it. Take action. If you are convinced of a hyper-inflation then, by all means, open a short position on the currency that you believe will be affected. Just know that this is speculation. With all speculation you MUST define an exit scenario before-hand.