Minggu, 31 Januari 2010

Investing for Deflation

Investing for Deflation

As all of you know that, US Economy may slip into the Deflation. However, the Fed has printed almost $ 1.2 Trillion and pushed it into the economy so the chances are very likely that, we will experience the Hyperinflation rather than the Deflation because the newly printed will dilute the purchasing power of the existing money in the circulation which will cause hyperinflation.

Now, what it means by Deflation? Well, it’s exactly the reverse of Inflation (Hyperinflation). Means here the purchasing power of money increases over the time. This means that goods, services & Assets in the economy become cheaper and cheaper day by day. Initially it looks cool but this is not good for economy & businesses in the long run because the businesses will post the low earnings on the wall street and their share prices will go down and thus the erosion of wealth.

Now, What to do as an Investor during the time of Deflation?

Well, it’s very simple. Here are two ways for Investing for Deflation -

01) According to Financial Experts, “It is always advisable to become a lender (Debt/Bond Holder) rather than a Borrower during the time of Deflation.”

It means that during the time of deflation, you should invest in the debt funds, bonds and any other kind of debt instruments. Because during the time of deflation, your money becomes more valuable day by day (Exactly reverse of the Inflation). So it is not advisable to borrow money but to lend money.

02) Cash is the Best Investment during Deflation – Well, This is because during the time of deflation, your money becomes an Asset. Otherwise, money is not an Asset because the inflation erodes its purchasing power over the time. But during the time of deflation, the value of your money increases day by day because the goods and services in the economy become cheaper and cheaper. Thus, Money (Cash) is the best asset during the time of deflation. So Invest in Cash during the time of Deflation.

So follow the above 2 basic principles of Investing for Deflation and you will always win during the time of deflation.

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