High Inflation and the Markets: Why ETFs Can Be a Smart Investment
Todd Rosenbluth, head of research at VettaFi, discusses whether the Fed is keeping inflation under control and can avoid recession on “The Claman Countdown.”
Whether you pay more for gas or groceries, the prices of basic necessities are rising and everyone feels the need for them. It’s inflation.
“In simple terms, inflation is an increase in the prices of goods and services that corresponds to a decline in consumer purchasing power,” explained Ashley Tran, assistant branch manager of Fidelity’s Tampa, Florida branch.
If you want to keep investing to weather the storm, exchange-traded funds or ETFs can be a smart investment choice.
How does inflation affect global markets?
As U.S. inflation hit a 40-year high in May, Tran said it wasn’t the only country to see rising costs. Rising gasoline and food prices following Russia’s invasion of Ukraine have pushed up inflation around the world, she noted.
TIPS FOR THE FIRST-TIME ETF BUYER
Traders work on the floor of the New York Stock Exchange in Manhattan, New York, August 2, 2022. (Reuters/Andrew Kelly)
“International investors face a number of financial risks in times of inflation,” Tran added.
Why ETFs?
ETFs are baskets of securities that trade like stocks on a stock exchange.
“They give investors access to underlying investments, like stocks or bonds, and generally offer more diversification than a single stock or bond,” Tran said.
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Why are ETFs a good idea if inflation is rising?
In times of market volatility and rising inflation, Tran noted, ETFs are a smart choice to consider for diversifying a portfolio.
ETF stands for Exchange Traded Funds. (Illustration iStock/iStock)
“It’s also important to remember your long-term savings strategy, especially in times of inflation and market volatility, to help your investments grow over time,” she said. .
Do ETFs take inflation into account and are they less risky?
As ETFs track a particular sector or index, there are options ETFs that hedge against inflation.
“Overall, ETFs are a great option, especially compared to leaving your money in a traditional savings account, because a diverse asset mix will help your investments grow over time,” added Tran.
WHY ETFS ARE A GOOD INVESTMENT
People shop for frozen food at a store in Rosemead, California on June 28, 2022. (Frederic J. Brown/AFP via Getty Images/Getty Images)
Do ETFs offer less risk to investors?
ETFs help diversify an investment portfolio, Tran said, which reduces the level of risk and also creates a well-balanced strategic asset allocation between stocks and bonds. She added that ETFs are good investment vehicles to consider during rising inflation and market volatility.
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What to consider about ETFs and inflation
Todd Rosenbluth, head of research at VettaFi, says commodity-focused ETFs are especially helpful in times of inflation.
“The price of gold, energy and agricultural commodities tends to rise during periods of high inflation, and ETFs provide easy, low-cost access,” he said.
| Teleprinter | Security | Last | To change | To change % |
|---|---|---|---|---|
| GLDM | WORLD GOLD TRUST SPDR GOLD MINISHARES TRUST | 34.97 | -0.20 | -0.58% |
| PDBC | INVESCO ACT MANAGE EXCH TR CMDTY FD OPTIMUM YIELD DIVERSIFIED C | 17.16 | -0.09 | -0.52% |
| PPI | INVESTMENT MANAGERS SERIES TR II AXS ASTORIA INFLT SENSITIVE | 24.73 | -0.32 | -1.28% |
| INFL | LISTED FUNDS TRUST HORIZON KINETICS INFLATION | 30.60 | -0.32 | -1.03% |
Rosenbluth added that ETFs like SPDR Gold MiniShares and Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF are some examples.
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Additionally, he says there are more diversified ETFs like AXS Astoria Inflation Sensitive ETF and Horizon Kinetics Inflation Beneficiaries ETF.
“These ETFs are actively managed and provide exposure to stocks that can perform well in times of inflation,” Rosenbluth added.
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