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• Orman advises stock market crises to raise good stocks
• Financials from the banking and insurance sectors should benefit from rising interest rates
• Orman: Mining stocks perform well even in times of inflation
2022 has been a horrible year for most investors so far. International stock market indices such as the Dow Jones, the S&P 500, the DAX or the EURO STOXX 50 are all clearly in the double-digit range of the year; the entire cryptocurrency industry around Bitcoin, Ether and Co. has lost hundreds of billions of market capitalization in recent days, and supposedly stable ports like gold are currently weakening. So how do you arm yourself against inflation? Independent investment advisor and famous financial book author Suze Orman comes up with a result that is sure to surprise some stockbrokers.
Orman: “Stocks are the best protection against inflation”
After extensive research, Orman concludes that stocks offer the best protection against inflation: in times of inflation, “stocks have made the best long-term gains after evaluating inflation,” writes Orman in a paper. blog post quoted by Yahoo Finance. However, how can you tell if the stocks have already fully “priced” inflation – the expert does not comment. On the other hand, he strongly advises against bonds and cash: “Bonds and cash struggle to keep up with inflation; only stocks can demonstrably outperform inflation.” However, Orman makes a difference: not all stocks are created equal, especially not in times of inflation. Orman sees three sectors as particularly promising.
The banking sector should be the beneficiary of the rise in interest rates
Orman generally recommends investing in contrarians. All equity investors should be aware that their equity portfolio can go down for months. But instead of walking around, long-term-oriented stockbrokers should “take the opportunity to get more first-class stock at a bargain price.” In the event of general market weakness, bank shares are particularly worth buying, recommends Orman. Banks traditionally perform significantly better than the market as a whole during a cycle of rising interest rates, as higher key interest rates increase banks’ profit margin between deposit and loan rates. This also raises interest rates on bonds in which banks invest heavily. In particular, the three main US banks Bank of America, Citigroup and Wells Fargo are expected to benefit from this effect in the coming months. Incidentally, veteran British investor Jeremy Grantham also believes in banking stocks in times of inflation, owning a large stake in US Bancorp.
The insurance industry has traditionally thrived in an environment of high interest rates
Just like banks, there are other financial stocks that are not affected by the rise in interest rates at all, but are more likely to benefit from the fact that the end of the low interest phase has been announced in the US: insurance companies. A major benefit of auto and life insurance is that consumers continue to pay insurance premiums despite tighter belts due to inflation. This makes insurance companies relatively independent of economic developments and guarantees high free cash flow even in difficult economic times. Thanks to the higher interest rates, they can therefore invest liquidity reserves more profitably in bonds. Insurance groups also convince as traditionally reliable dividend payers. All of this makes insurance stocks the optimal defensive stocks in times of uncontrolled inflation rates, concludes Orman. In relation to the US, insurance companies such as Allstate or MetLife would be suitable, and Chubb, now based in Switzerland, is also interesting.
Orman: Precious metal stocks tend to outperform inflation unscathed
The third share class Orman explicitly recommends buying is the mining sector. Gold and silver have traditionally been used as a hedge against inflation, but Orman believes investing in precious metals companies is cheaper, less complicated and more profitable. Additionally, many diversified resource companies have the benefit of mining more metals. Mining giants Rio Tinto and Freeport MacMoran also mine copper, a metal currently in high demand for electric car manufacturing. Historically, an investment in precious metal stocks has been most beneficial when inflation has continued to rise, as it currently appears.
Financeen.net editorial staff
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