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Commodity Prices are Rising - Is Inflation Around the Corner? |
| Higher commodity prices will drive inflation - do you have an inflation investment plan ready?
Inflation is a hot topic right now as commodity prices continue to rise. Higher commodity prices, like gold and oil, are indicative of worsening expectations about inflation in the future and can drive consumer prices up. Concerns about the longer term impact of the Fed's monetary activities, stimulus spending and the government's projected deficit has investors on edge.
However, inflation can be good or bad for investors depending on how severe it is, what growth looks like and what kind of investments are being made. There are many things that can be done to create an investing plan for an inflationary market.
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Essential Reading for Traders
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| | | | | Inflation is typically bad for savers and investors that hold cash equivalents because the value of those assets decline in an inflationary environment. This is one of the reasons that bond prices tend to drop and yields rise during periods of inflation.
It is arguable whether stock investors will fare any better than bond investors during periods of inflation. When adjusted for inflation, even a break-even investment in the S&P 500 (.INX) or the Dow Jones Industrial Average (.DJI) stock indexes over the last 11 years would be down 30% in purchasing power. All is not lost, however, you can learn more about creating an investing plan for an inflationary market in the links below.
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