Jul 14, 2022
With U.S. inflation hitting yet another multi-decade high — it reached 9.1% in June — Americans continue to see their purchasing power plummet.
But whether we've reached peak inflation or we’re heading into a recession, Suze Orman, personal finance expert, says you should still lean on stocks for the long haul.
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“Over the long-term stocks have produced the best gains after factoring in inflation,” writes Orman in a blog post. “Bonds and cash struggle to keep pace with inflation; only stocks have a track record of earning more than inflation.”
Orman's advice is sound. But some areas of the stock market perform better than others during periods of high inflation.
Whether you’re looking to invest thousands of dollars or just a bit of your savings, the following three sectors might give you an extra boost over the next few years.
1. Banks
In her blog post, Orman says investors should be prepared for stocks to go through periods where their value dips.
But that also offers the chance to snap up more top-shelf stocks at bargain-bin prices. When the next pullback happens (and it will happen), there’s one place investors might want to look to first: banks.
Unlike the vast majority of other industries, banks tend to fare relatively well when the Fed tightens up because of their asset-sensitive nature. When interest rates rise, bank assets like bonds and loans tend to climb higher than their liabilities such as deposits.
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Rising rates also mean that banks can earn a wider spread between what they pay out in savings account interest and what they earn from Treasuries.
Another great thing about buying bank shares is you don't need to overthink it.
Just pick two or three of the country’s largest banks, like Bank of America, Citigroup and Wells Fargo, and you should have all the positive exposure to rising interest rates you need.
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2. Insurance
Even when people slash their budgets to help offset rising prices, we know those auto and life insurance premiums will keep rolling in no matter what.
Which means although insurance may not be the most exciting industry, it’s a defensive business that can provide plenty of portfolio protection — especially since insurers typically earn better returns on their “float” when rates rise.
And on top of that, insurers often pay their shareholders dividends, which means you can count on a little extra cash a few times a year.
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For those interested in investing in insurance, Chubb, Allstate and MetLife are some of the big, blue-chip names in the industry.
3. Precious metals
When it comes to investing in precious metals, these stock picks can be worth their weight in gold.
Gold and silver have long been considered safe haven assets, meaning when all else fails, their value doesn’t really tarnish.
You can always buy precious metal bullion or coins, but mining stocks and ETFs allow you to invest in the space at a low cost and without needing to find storage.
Moreover, large diversified mining companies like Rio Tinto and Freeport-McMoRan also dig up metals like copper, which is currently experiencing booming demand due to its role in electric vehicle production.
Historically, the best time to make money from metals is when inflation is poised to keep increasing — like right now.
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Sigrid is a senior associate editor on the Moneywise team, where she has also worked as a reporter and staff writer.
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