agree that the newly-printed banknotes are bound to increase consumer
prices, although nobody can tell precisely when this will happen.
The loss of purchasing power will possibly take place in a few months,
maybe in a year. If you do nothing, it is going to catch you
unprepared.
On the other hand, if you take sensible measures, you should be able
to profit from the situation or, at the very least, minimize negative
consequences on your life.
The theory behind inflation can be summarized in one sentence: If the
amount of items and services produced in a country remains stable,
while the number of banknotes increases, then the purchasing power of
each banknote will become smaller.
As private individuals, we have to contemplate inflation as a problem
to be dealt with. Complaining is unlikely to change anything, at least
in the short term, so let us review what paths are open to us in order
to escape the loss of purchasing power:
* FOR YOUR INCOME: If possible, try to link your revenue to products
or services whose price is likely to augment at the same or higher
pace than inflation.
* FOR YOUR CONSUMPTION: Anticipate your purchases of durable goods
(such as a television set) and consumer goods that you can store at
home (such as canned food) in order to benefit from current low
prices.
* FOR YOUR SAVINGS: Reduce to the minimum the amount of cash you keep
and invest the rest in assets whose value is likely increase faster
than consumer prices.
What will be the exact rate of inflation in each country? At present,
we can only speculate about that point, since there are so many
factors involved. Price increases tend to spread around the globe, but
History shows that the loss of purchasing power varies from country to
country.
For this reason, in order to avoid investing your savings in one
single currency, it makes good sense to buy shares of solid companies
located overseas. The same risk-reduction strategy applies if you
invest in shares of local companies that possess foreign subsidiaries.
Here are two examples that I am currently researching, today May 9th,
2009.
1.- HELLENIC TELECOM (NYSE:OTE). Did you know that despite a worldwide
economic recession, the Greek economy is still expected to grow this
year? By international standards, Hellenic Telecom is a small phone
company, since it has only about 1 million customers, but it yields
good profits.
In the current market, the price/earnings ratio of its shares is 8.
Analysts are predicting a dividend around 5%.
2.- JOHNSON AND JOHNSON (NYSE: JNJ). This is a truly global company in
the field of health-care products. The fact that Johnson and Johnson's
profits are generated in different countries and currencies, makes
this company a sensible bet against inflation.
Another positive aspect of Johnson and Johnson is that, even when
facing a difficult economy, people are unlikely to reduce their
consumption of pharmaceutical products. These days, the price/earnings
ratio of the shares is about 12. Analysts are predicting a dividend in
the range of 3.5%.
Whatever investment choice you make, check everything three times
before making any commitment. Investing in shares, even of solid
companies, involves substantial risk.
Precious metals and mining stocks constitute alternatives that you
might wish to consider, but make sure to gather sufficient information
before making a decision.
In any case, if inflation comes, keeping your savings in cash
guarantees that you will experience a loss of purchasing power. As it
often happens in life, doing nothing tends to be the worst possible
option.
Making Money In Stock Trends: http://www.trdeshadow.tk/
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