Finance Inflation-resistant businesses Rapidly rising prices are rarely good for any business. But not all businesses suffer from them in the same way. In fact, the stocks of some high-quality businesses are largely resistant to the effects of inflation – and some actually benefit from it. Basic household goods such as toothpaste, paper towels and dish soap – we purchase these regularly regardless of inflation. Groceries and gasoline are the same. Ditto for health care – if you’re sick, you’re going to get that prescription filled, no matter what economists may be saying about inflation. Sure, we might tighten our belts and try to cut back on these expenses when prices are rising, but very few of us are going to completely stop buying these things, which is good news for the companies that provide such essentials. This doesn’t mean that these businesses are completely immune to inflation. But when you run a business from which consumers will keep on buying despite rising prices, that bodes pretty well for your stock price. Focusing your portfolio on a handful of these companies can be a good way to insulate yourself from some of the market turmoil brought on by inflation. Obviously, the best time to do this is before inflation becomes an issue. But such investments aren’t a bad idea even now – particularly if the economists are right, that inflation will be with us for at least a few more years. Dividend-paying stocks We’ve been big champions of blue-chip, dividend-paying businesses for a long time – they remain a foundation of a solid retirement portfolio, and almost every snowbird would be well-served by allocating at least a portion of their portfolios to them. During times of inflation, however, dividend-paying stocks can be an even better idea. Not only does their size tend to make them less volatile than more speculative “hot stocks,” their regular dividend payments can compensate for at least some of the loss of purchasing power caused by inflation. Plus, most dividend-paying companies slowly increase their dividends over time, even during times of high inflation – the higher prices which they charge for goods and services generate more cash to pay out to shareholders. That makes dividend-paying stocks dramatically different from bonds, for example, whose interest payments are often (although not always) set at the time of purchase. Is it a good time to add solid, dividend-paying stocks to your portfolio? Again, the best time to do so was before inflation kicked into high gear. But they can still be a good choice going forward. Many large dividend payers in sectors such as telecom, health care, railroads, consumer staples and select banks can insulate your portfolio against inflation. For those investors who aren’t the stock-picking type, dividend-focused ETFs and actively managed mutual funds offer a way to get broad diversified exposure to dividend stocks in a single affordable investment. International investments Economically, we live in a world in which economic and political events on one side of the globe can (and frequently do) affect markets on the other side. We saw this during Covid: supply chain issues in China, lockdowns in Europe and vaccine problems in North America all resulted in market turmoil, no matter where you invested your money. But that’s not always the case. Sometimes, world economies diverge and this seems to be the case with inflation: it looks to be going higher in the United States, but seems to be coming down (albeit slowly) in Canada. It’s exceptionally high across much of Europe (thanks in large part to the war in Ukraine) but it’s rather muted in Japan and China. In some emerging markets, it’s running hot but, in others, it’s not really much of a concern at all (at least at the moment). If you’re concerned about how inflation in North America will punish your portfolio, perhaps it’s time to consider some geographic diversification. Carefully selected exposure to stocks and bonds based in inflation-resistant geographies can be a good way to minimize inflation’s effects on your North American holdings. For most investors, a global or international-focused ETF or mutual fund is probably the easiest way to gain such exposure; more experienced investors might want to take a look at country-specific ETFs or even individual stocks listed on foreign exchanges. 30 | www.snowbirds.org
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