Just as we came out from COVID-19, another problem stood outside our doors - inflation. Geopolitical issues and the rise in commodity prices have added to the inflationary pressures worldwide.
What’s The Plan?
Earlier it was COVID-19, and now it’s inflation. Markets have remained volatile depending on the global cues. In situations like these, where a war is happening, commodity prices are rising, and the central banks are increasing their interest rates, there must be an investment strategy that can continue generating money for us.
Different situations demand different solutions. In the current market environment, it’s advisable to remain invested in sectors with a bright future like clean energy, IT, private banks etc. Also, there’s the limited impact of inflation in industries like healthcare, media and telecom. When the share market turns volatile, take refuge in safe sectors less exposed to broader markets. Choose well-established businesses rather than small companies that can hardly survive in challenging market conditions.
The point here is to rejig your portfolio and invest more in companies that have healthy balance sheets. If you like midcaps and smallcaps, you can heavily invest in blue chips first and then allocate some of your funds to mid-sized and small companies.
What Can Go Wrong?
Improper sector allocation or asset allocation can be troublesome. You can remain invested in your long-term bets, but you need to re-adjust your portfolio’s midcap and smallcap bets. A lot of investors buy stocks with a three-month or six-month view. These are the stocks that fall in trouble as near-term challenges appear. Overall, the equity markets will continue to do well over the next few years, so one should always prioritise blue chips in their portfolio.
What Lies Ahead?
Equities and private assets will continue to provide a hedge against inflation in the coming years. Also, long-term investments have usually been accurate and have delivered healthy profits to the investors. If you can implement these two things, one can maintain its gains in inflationary environments.
