Tuesday, June 16, 2009

Stocks to Protect Against Inflation

Inflation is all but certain in this economy. The government has interest rates set as close to 0 as you can get, plus they are buying up treasuries. Sooner or later, the printing press's will have to be put to work, and with that, comes inflation. I, by no means, expect to see hyper inflation, or even inflation rivaling that which we saw in the 70's and 80's, however, we will have it, and it will be strong in my opinion.

So, what does one look for when investing in stocks that will protect you against inflation? Well, first and foremost, the stock market is not a terrible place to have your money when inflation is upon us. Inflation is a rise in prices. When prices rise, that means it is likely that your stocks will be earning more money. What you want to look for are stocks which are quickly able to adjust prices, as well as companies which are not effected by the rising costs of raw materials. You want companies which have fixed costs such as machinery, real estate, or labor, rather then those that rely on a lot of buying of materials. You also want to look at companies which sell food, beer, wine, cigarettes, and oil. Here are just a few:

ConocoPhillips (COP)
They have a business that is tied more towards the actual oil price then most of their competition.

Molson Coors (TAP)
They rely on less raw materials then their competition. That;s why maybe their beer is usually more watery. Might not be good for the taste buds, but during times of inflation, their costs rise less than their revenue.

Eli Lilly (LLY)
They make important and vital drugs. Their dividend yield is 5.8%, and people don't stop buying drugs they need to survive when inflation hits.

Remember to diversify your holdings and don't just invest in stocks. Keep some cash on the sidelines so you can react to any changing conditions, and also consider a small amount of gold or silver as a precaution to unforeseen economic events.


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