Understand stagflation strategies for investing
Stagflation is one of those terms investors wish they would never hear, but it occasionally resurfaces when the economy shows contradictory signals. It is a scenario where inflation is high, but economic growth is weak, and often accompanied by rising unemployment.
For those investing in the United States, this is a true test of patience and strategy. After all, how can one protect their assets while still seeking returns in such a challenging environment?
The good news is that there are paths. Although there is no single formula, there are well-established strategies that can help investors navigate uncertainty. Let’s explore the main ones.
1. Betting on real assets: protection against inflation
One of the biggest risks of stagflation is the loss of purchasing power. That is why real assets, such as real estate, commodities, and even art, tend to gain traction.
In the U.S., the Real Estate Investment Trusts (REITs) market stands out as an accessible way to gain exposure to real estate, since many funds have lease contracts adjusted for inflation.
Commodities like gold and oil also serve as shields in turbulent times. Gold, in particular, is considered a safe haven in times of economic uncertainty, while oil often appreciates during periods of inflationary pressure.
2. Treasury Inflation-Protected Securities (TIPS)
In the U.S. market, TIPS are a classic instrument against inflation. These Treasury bonds automatically adjust their value according to the Consumer Price Index (CPI).
For those seeking capital preservation and an extra dose of security, they act as a cushion against the corrosive effects of rising prices.
3. Defensive sectors of the stock market
Even in times of stagnation, certain needs do not disappear. Companies in sectors such as healthcare, utilities, and consumer staples tend to maintain relatively stable demand.
After all, medicine, electricity, and food are indispensable items.
Investing in these sectors’ stocks may not bring explosive returns, but it offers greater predictability amid turbulence.
Sector ETFs listed on Wall Street are a practical way to access these companies in a diversified manner.
4. Companies with pricing power
Not all companies suffer equally from inflation. Businesses that can pass costs on to consumers without losing competitiveness gain an edge. Strong brands and essential products often have this advantage.
An example is the technology sector focused on essential software, where clients tend to maintain contracts even in tight budget scenarios.
Similarly, large players in the food industry can adjust prices without a sharp drop in demand.
5. Liquidity and international diversification
In an uncertain environment, maintaining liquidity is more than prudent: it is strategic. Keeping part of the portfolio in cash allows investors to react quickly to opportunities that arise when prices fall abruptly.
In addition, diversifying outside the U.S. can reduce risks. Economies that are not experiencing stagflation at the same pace may offer better returns.
Global ETFs or emerging markets funds can be interesting alternatives, provided investors consider the currency risks involved.
6. Equities with a focus on dividends
Stock market volatility can be intimidating, but shares of companies that consistently pay dividends remain one of the best alternatives.
In periods of weak economic growth, dividends act as an income stream, offsetting part of the instability in stock prices.
In the U.S., sectors such as utilities, energy, and traditional banks have a solid track record of paying dividends, serving as anchors for portfolios during turbulent times.
7. Adjusting the risk profile
Finally, investing in times of stagflation requires self-awareness. Some investors prefer to reduce their exposure to equities and increase positions in inflation-indexed fixed income.
Others seek balance between risk assets and protective ones. There is no universal solution, but the key is aligning the portfolio with long-term goals and risk tolerance.
Conclusion
Stagflation is a challenging scenario, but it doesn’t have to mean paralysis for investors.
Real assets, TIPS, defensive sectors, companies with pricing power, dividends, and international diversification are some of the most widely used strategies in the United States to face this economic phenomenon.
More than trying to predict every market move, what makes the difference is being prepared.
The combination of inflation protection, liquidity preservation, and the selection of resilient assets can turn a scenario of uncertainty into an opportunity to strengthen portfolio solidity.