Here is practical way for investors to limit inflationary damage
Cash is performing poorly at a time when prices are rising.
Corporate stocks tend to hold value better than cash. However, the inflationary defenses of those stocks are dependent on a number of factors.
A recent study by Schroeder looked back on the past to understand how stocks in a particular sector performed during stagflation, when inflation rose above average while economic growth slowed.
This is because we may face such a situation in 2022. The report concluded that:
• Stocks of companies with strong defensive character tend to hold out better.
• The sectors that performed best during stagflation (from 1995 to December 2021) were utilities, essential consumer goods and real estate (Source: Schroders Economics and Strategic Research Unit).
Distributed investment also acts as a major defense mechanism during inflation. A portfolio that operates effectively is exposed to multiple asset groups. Therefore, it may be advantageous to hold shares of the entity (as mentioned above) and allocate the share of the entity to other alternative assets, including raw materials, gold, real estate, and private equity (an investment not listed on the open market).
