Let’s keep this short: inflation is back, and it’s really bad. Like, really bad (sorry millennials; we’ve been through a lot in our short adult lives). Just how bad? Recent reports show that consumer prices went up 4.2% in April 2021, which is the fastest since 2008.
To put it to you in the easiest way possible, we haven’t seen inflation this bad in at least 25 years, if not ever. However, the good news is that this is going to be temporary. While 6-12 months might feel like eternity to you, just stay calm.
Have money in the stock market? We repeat: stay calm. Let others go crazy as the numbers plunge in a few months. You’ve got WealthStack on your side to get you through this.
How Does Inflation Affect the Stock Market?
Inflation affects the price of stocks quite a bit and can have a very, very big impact on the economy as a whole. And we’re talking about affecting more than just the prices of consumer goods. It goes all the way down the economic pipeline.
While it’s usually temporary, and this one’s expected to be just as temporary as other periods of inflation, this period is really going to move the needle on the economy. This is in part due to the fact that last April the economy was still reeling from the sudden, widespread shutdown of, well, basically the entire global economy. If you’re positioned poorly, this could really hit you badly.
But let’s get back to the question at hand. How does inflation affect the stock market? It helps to look at copper as your base here. It’s one of the leading inputs and plays a major role in the home production process. So, as you might guess, when the price of copper increases, the price of home construction increases.
We know what you’re thinking. “I’m barely 30 and have lived through two massive economic downturns, a global pandemic, and have over $50k in student loans. What do I care about buying a house right now?” Well, you’ll be part of the group that foots the bill for these rising costs.
The upper class is going to set the price for copper because they’re willing to pay the most for the materials to build their fancy houses. This leads to massive increases in the prices of inputs as a whole. Then, everything snowballs from there.
Should You Invest in Stocks Now?
It’s worth mentioning again that you shouldn’t panic about this inflation. Yeah, it’s gonna get bad, but I believe that the shock will last more or less a year, have quite an impact, and then get better from there.
Why does this matter if you’re interested in trading stocks and aren’t at all thinking about building a home? When other people are losing their minds in fear, you should be preparing yourself for the eventual upturn. So, now might actually be a great time for younger millennials to invest in the stock market.
What would I do? Don’t be fully invested and be sure to have some cash stashed away. If you’re younger, you don’t need to be as conservative with your savings.
Let’s say you’re in your 20s or 30s and don’t have a family. If you want to be a little conservative, take the normal amount of cash you’d be investing with annually and save about 15-20% instead of investing it all. If you don’t need to be as conservative, you’d be fine with saving only about 5-10% of your regular investment money during this period of inflation.
This frees you up to keep between 80-95% in stocks over the next year. Be patient. Stay calm. Don’t let your emotions get the best of you. Watch the number fluctuate and don’t flinch. When good companies start dropping due to inflation, you’ll have the cash on hand to invest in those.
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