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Investment Strategies When We are in Inflation or Deflation economy
Deflation: A decrease in the general level of prices for goods and services in an economy over a period of time. Inflation: A rise in the general level of prices of goods and services in an economy over a period of time.
What do we worry more in the current situation? Deflation or Inflation? How does this impact our investment strategy?
In deflation, in my opinion, you can see price drop in goods so you enjoy the buy. Don't be pleased so much, because you have more burden on your mortgage and loans. You may see the following happen:
* Spending falls * Price drops * Salary decreases * Goods are manufactured less
In inflation, in my opinion, you can see price increase so you have less purchasing power. But, you enjoy a debt decrease. Inflation world is the current what we have lived for so many years, except you lived in Japan in the last 15 years.
It's government monetary and budge policies to mitigate the deflation or inflation risks. In an inflation economy, government can choose some policies that favor to raise taxes, increase interest rates, decrease services. Or simply printing money to pay off the debts to fix the current issues. How about the long term impact after printing so much money? My answer is "who cares for now". The politician cares more on staying re-elected rather than fixing issues for his successor.
What is your personal investment strategy in these two different economy? In an inflation economy, palpably you should not keep cash because the money will lose value. You should go hard assets, such as gold, oil, commodity, real estate, etc. On the contrary, in a deflation economy, you are in advantage if you hold cash.
Pay attention to the economic statistics data so you stay tuned on the economy world if you care your money. Of course you do, don't you?
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