When inflation is high, is it worth buying stocks, bonds, or ETFs? Here are the considerations of some experts and suggestions on how to invest in the next 10 years.
Over the past few years, the global economy has undergone profound transformations, shaped by the impetus of inflation and the restrictive measures adopted by central banks around the world. This scenario implies an epochal change in mentality for investing in the next 10 years compared to how it was done in the previous twenty years. High inflation, destined to persist over time, requires a new and flexible perspective to obtain positive returns in a challenging economic context.
How to invest in the era of high inflation
High inflation is expected to remain a constant presence over the next ten years. This scenario is fueled by raw material shortages, reshoring of corporate production, and labor shortages in critical roles, partly due to demographic changes. These conditions, according to experts, will have a direct impact on the volatility and returns of assets that have shone in the last ten years. Investors will therefore have to adopt new strategies to thrive in this new financial environment.
- Source: Statista
For investors with a long-term vision, the expert from the Swiss private bank recommends focusing mainly on global stocks. This approach is particularly suitable for those who have assets between 1 and 5 million euros. “If you have a long-term vision, the best thing is to buy stocks,” said Charles-Henry Monchau, chief investment officer of Swiss private bank Syz, underlining the importance of a long-term perspective during high inflation.
For those who can invest smaller amounts (50-100 thousand euros), the best strategy to follow is the one suggested by David Dietze, senior investment strategist at Peapack Private Wealth Management:
- 25% in an S&P 500 index fund
- 25% in broad market ETFs,
- 25% in an international index fund,
- 25% in fixed-income indexed ETFs.
Dietze issues a warning, however: “$50,000 is probably not enough money to invest in individual stocks or bonds, so mutual funds would be needed.”
3 shares to buy and hold for 10 years
Long-term-oriented investors are distinguished by their ability to look beyond temporary fluctuations in stock markets. Their preference is for shares of stable and reliable companies, whose performance is evaluated over a period of years or even decades. However, in the current environment of high inflation, it is essential to also consider this factor in investment decisions. In fact, traditional historical performance metrics may prove to be less than indicative for identifying the best investment opportunities for the next 10 years. It is therefore essential to adopt a broader and more flexible perspective, focusing on companies with solid fundamentals and strong resilience to market challenges.
Here is a selection of 3 stocks identified by TheMotleyFool:
1) Brookfield Infrastructure
US President Joe Biden has declared that the next 10 years will be the "age of infrastructure". Against this backdrop, Brookfield Infrastructure (BIP) looks set to benefit from this trend. The company boasts a wide range of assets, including cell towers, data centers, electrical distribution lines, oil pipelines, rail operations, semiconductor manufacturing foundries, toll highways, and more. Brookfield Infrastructure’s financial goals include achieving organic funds from operations (FFO) growth of between 6% and 9% per year, with potential for further growth through new commercial agreements. Furthermore, it offers attractive returns for investors, with a distribution yield of 4.8%.
2) Microsoft
In the technological landscape of the next 10-20 years, the main trends will concern artificial intelligence (AI), augmented/virtual reality (AR/VR), cloud computing, and quantum computing. Microsoft is well positioned to lead in all of these directions, thanks to its established presence in the cloud services industry with Azure, investments in AI and AR/VR, and collaboration with OpenAI to implement generative AI in its products. With a continued focus on increasing business productivity, Microsoft is well poised to drive growth through AI in the coming decades.
3) Vertex Pharmaceuticals
This pharmaceutical company enjoys a monopoly in the treatment of cystic fibrosis. Additionally, it is on the verge of launching three new products by 2025, with potential sales of more than $1 billion each. Among these, there is a promising treatment for sickle cell disease and transfusion beta-thalassemia. Additionally, Vertex is at the forefront of finding a cure for type 1 diabetes. The company has three programs in Phase 1-2 clinical trials for this condition. These promising results and its dominant role in treating rare diseases make it an attractive choice for long-term investors.
These stocks represent solid opportunities to invest and hold in your portfolio for a decade or more, thanks to their promising long-term growth prospects and resilience over time.
3 ETFs to buy and hold for 10 years
One of the best allies for long-term investors is patience and ETFs represent the most suitable tool for "buy and hold" investors.
The ability of low-cost index funds to generate long-term returns is well known: numerous studies have shown that a “buy and hold” approach can be more profitable than researching investment trends. Analyzing a 10-year time frame on Wall Street - choosing a date at random and then moving forward exactly 10 years - we get an average annual return of about 12% over that time frame.
Not only does this approach require much less work, but it also generates much less stress, allowing you to accrue significant profits.
Let’s see below 3 ETFs to buy and hold for 10 years:
1) iShares Core S&P 500 ETF (IVV): with $340 billion in assets under management, it is the second-largest ETF on Wall Street. Provides exposure to the 500 largest US stocks, with a strong presence in the technology sector.
2) Vanguard High Dividend Yield ETF (VYM): Assets under management total $48 billion invested in companies with above-average dividend yields. It includes around 460 companies, with a strong presence in the financial and consumer goods sectors.
3) iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD): Offers access to over 2,600 high credit-rated corporate bonds. In particular, these are loans to highly reliable companies such as Pfizer and Goldman Sachs, known for their solvency. Currently, thanks to the rising interest rate environment, this fund has a 30-day SEC yield of 6%, nearly four times higher than the average dividend yield of the S&P 500. If long-term income is your goal, bonds are a good option, and LQD is one of the largest and cheapest ETFs available.
Original article published on Money.it Italy 2023-10-14 07:17:00. Original title: Come investire nei prossimi 10 anni (con alta inflazione)
