"The only asset class that generates profits in times of inflation": What Suze Orman now recommends to investors

shares in this article

Raw materials in this article

indexes in this article

• Orman advises stock market crises to collect good stocks

• Financial stocks from the banking and insurance sectors should benefit from rising interest rates

• Orman: Mining stocks also perform well in times of inflation

2022 has been a horrible year for most investors so far. The international stock market indices such as the Dow Jones, the S&P 500, the DAX or the EURO STOXX 50 are all clearly in the double-digit range for the year; the entire crypto sector around Bitcoin, Ether and Co. has lost hundreds of billions in market capitalization in the last few days and supposedly stable ports such as gold are currently weakening. So how do you arm yourself against inflation? The independent investment advisor and famous author of financial books, Suze Orman, comes to a result that is sure to surprise some stockbrokers.

Orman: “Equities are the best protection against inflation”

After extensive research, Orman comes to the conclusion that equities offer the best protection against inflation: In times of inflation, “stocks have made the best long-term gains after they have priced in inflation,” writes Orman in a blog post quoted by Yahoo Finance. However, how you can tell whether the shares have already fully “priced in” inflation – the expert does not comment on that. On the other hand, she firmly advises against bonds and cash: “Bonds and cash struggle to keep up with inflation; only stocks can demonstrably outperform inflation.” However, Orman differentiates: Not all shares are the same, especially not in times of inflation. Orman considers three sectors to be particularly promising.

Banking sector should be the beneficiary of rising interest rates

Orman generally recommends contrarian investing. All stock investors should be aware that their stock portfolio can experience a months-long slide. But instead of moping around, stockbrokers with a long-term perspective should “take the opportunity to get more first-class shares at a bargain price”. In the event of a general market weakness, it is particularly worth buying bank shares, recommends Orman. Banks traditionally perform significantly better than the market as a whole during a cycle of rising interest rates, since the higher key interest rates increase the banks’ profit margin between deposit and lending rates. This also increases the interest rates on the bonds in which banks invest heavily. In particular, the three major US banks Bank of America, Citigroup and Wells Fargo should benefit from this effect in the coming months. Incidentally, veteran British investor Jeremy Grantham also believes in banking stocks in times of inflation, owning a large stake in US Bancorp.

The insurance industry traditionally thrives in the high interest rate environment

Just like banks, there are other financial stocks that are by no means suffering from rising interest rates, but are more likely to benefit from the fact that the end of the low-interest phase has been heralded in the USA: insurance companies. A major advantage of auto and life insurance is that consumers continue to pay insurance premiums despite tighter belts due to inflation. This makes insurance companies relatively independent of economic developments and guarantees a high free cash flow even in economically difficult times. Thanks to the higher interest rates, they can then invest the cash reserves more profitably in bonds. Insurance groups are also convincing as traditionally reliable dividend payers. All of this makes insurance stocks the optimal defensive stocks in times of runaway inflation rates, concludes Orman. In relation to the USA, insurance companies such as Allstate or MetLife would be suitable, and Chubb, which is now based in Switzerland, is also attractive.

Orman: Precious metals stocks tend to get through inflation unscathed

The third stock class that Orman explicitly recommends buying is the mining sector. Gold and silver are traditionally used as a hedge against inflation, but Orman believes investing in the precious metals companies is cheaper, less complicated and more profitable. In addition, many diversified resource companies have the advantage of mining multiple metals. The mining giants Rio Tinto and Freeport MacMoran also mine copper – a metal that is currently in high demand for the manufacture of electric cars. Historically, an investment in precious metal stocks was most worthwhile when inflation continued to rise – as it currently appears.

Editorial office finanzen.net

Image sources: Immersion Imagery / Shutterstock.com, Rehab Mark / Shutterstock.com