Deflation? Inflation? Portfolio Construction and Lessons From the Three Little Pigs
Just when you thought it was safe to get back into the investing waters, talk of deflation has crept back into conversation.
Why does it matter? Well, how you position your portfolio to deal with these two scenarios will make a big difference to your personal bottom line now and into retirement.
With inflation, your money is worth less the longer you hold onto it. So you’re more likely to spend in the now because prices may be moving up.
With deflation, your money may buy more later the longer you hold onto it as prices continue to drop. (Not good for a seller but a better deal for a buyer – just ask someone trying to sell a house in Florida these days).
Since consumers respond differently to these two opposing forces, the ultimate direction of them can have a decidedly different impact on how the recovery progresses because of the way consumers react and business respond to their actions. Ultimately, this will impact how to position an investment portfolio accordingly.
The Right Hook
During a fight a boxer may expect to be hit from both the right and left. It’s just not known when and with how much force. But a good boxer, like a Boy Scout, knows to be prepared.
First the economy has been peppered with jabs from the right that could result in higher inflation: expanding money supply, ballooning government deficits, higher commodity prices, weak currency value.
