Investors are on high alert these days, but few are sure for what: inflation, deflation or stagflation. Deflation might be the more pressing concern at the moment, and we’ve got some exchange traded fund (ETF) strategies you can use to cope.
These days, everything from clothing to groceries are cheaper than they were one year ago, reports The Wall Street Journal. Apparently those days of year-over-year inflation have decided to take a break across the board, putting us on the brink of deflation. [How to Play Both Inflation and Deflation.]
Deflation is not exactly bad; when it’s simply the result of rising productivity, it’s a good thing. If it’s a sign of a deeper economic slump, the next thing to rise will be interest rates.
Ultimately, though deflation is a deleterious cycle that can cause banks to stop lending, businesses to halt expansion, wages to fall and consumers to reduce spending – all serving to drive prices even further downward. The CPI, or the Consumer Price Index, is a good indicator for deflation.
To cope with deflation, investors should look to short-term investment strategies, such as short-term certificates of deposit or money-market funds. If you’ve got a 10-year time frame, the technology sector is also an appealing place to look, since companies often boost productivity through the use of technology. [Inflation, Deflation and Stagflation: Playing Them with ETFs.]