Reviewing stock investments during times of inflation is vital because performance varies across all industries based on the current economic climate. According to www.marketwatch.com the rate of U.S. inflation is now at a 40 year high – so now is the time to take a closer look at what stocks you have investment interests.

Understanding “Stock” Lingo. You don’t have to be a stock market guru on Wallstreet to understand stocks and how they work, but you should do your research.

Since money buys less during times of inflation, consider placing it where it can be most beneficial. The type of stocks can be overwhelming: Common stock, Preferred stock, Blue chip stock, Class A or Class B stock, Large-cap, Mid-cap, or Small-cap, Cyclical stocks, Penny stocks, Yield stocks, Value & Growth stocks… Simply put – stocks represent a piece of ownership in a publicly traded company.

Additionally, there are 11 stock market sectors as classified by the Global Industry Classification Standard. Learning more about the sectors gives you a greater understanding about diversification and how the market is categorized. These sectors include healthcare, materials, real estate, consumer staples, consumer discretionary, utilities, energy, industrials, consumer services, financials, and technology.

Price to Earnings Ratio (P/E or PER) is a quick view to see if a company is overvalued or undervalued by the market. It is one of many metrics (earning charts, sales figures etc.) that should be used when evaluating a company. PER is how much you are paying per dollar the company earns. www.smartasset.com is a great resource to gain a simple understanding of this metric. PER is the stock price of a company divided by the earnings per share. If the PER is 15 that means investors are willing to pay $15 for every $1 of company earnings.

Value Stocks typically perform better during times of inflation. The idea is once other investors see the value; these stocks will bounce back over time for strong established companies. Companies in the financial, industrial or energy sector are considered Value Stocks. (Exxon, or JP Morgan Chase) Value stocks usually pay higher dividends than opposed to a Growth stock which may not pay dividends at all. Typically value investors look for a price to earnings ratio (P/E) of less than 15%-20%.

Growth Stocks are companies where the (P/E) ratio is higher and are expected to have sales and earnings at a faster rate than the market average. Due to the company’s fast growth, it drives the stock price up. People are more comfortable placing money in riskier investments when the economy is doing well (times of lower inflation). Growth companies may have a unique product or – according to www.Forbes.com (July 2022) “may have taken an existing idea and figured out how to scale it in a meaningful way.” (Tesla or Amazon) In leu of paying dividends a Growth company will reinvest their earnings into research & development, ramp up production or acquire smaller companies to invest in their growth – and not pay dividends like a Value stock. During uncertain times, (inflation) people tend to look to Value stocks as opposed to Growth stocks.

You don’t have to dive deep into the depths of the stock market to make smart investing decisions. Consulting a Financial Advisor and having a basic understanding how different investments flow with the current economic climate is a great place to start when reevaluating your investments!

For Educational Purposes Only – Not to be relied upon as financial, tax, or legal advice. The views expressed are those of the author/presenter and all data is derived from sources believed to be reliable. 4929547RLB_Aug24