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Inflation rate in Singapore (core inflation) rose to a 10-year high of 2.9% year-on-year in March 2022. In comparison, February’s YoY core inflation was 2.2%. And according to the Monetary Authority of Singapore and the Ministry of Trade and Industry, core inflation is forecast to pick up further in the coming months before moderating towards the end of the year.
So yep, thanks to inflation, earning and saving money alone are probably not enough to make you financially secure. That’s why we should aim to hedge against inflation.
Inflation erodes the value of our cash over time, so we need more and more money to buy the same things as the years go by. If you were around in the 90s, you might remember that it was possible to buy a plate of chicken rice for $1 or $1.50. Nowadays, you’re looking at a minimum of $3.50 at most hawker centres or food courts.
That also means that if you save $100,000 today, that $100,000 will be worth much less in 20 years’ time.
In order to beat inflation, people invest their money so it can grow. However, investing your cash doesn’t mean that it is definitely safe from inflation. If your money is not invested in a way that’s aligned with the market, it might not grow fast enough to beat inflation. Yup, it’s a neverending rat race!
Here are a few tips for giving your portfolio a boost to beat inflation.
Inflation hedge investment tips —
1. Hedge with US stocks
Maintaining a diversified portfolio, as you might already know, is always a smart move as it hedges against risk. If one market or sector crashes, you’ve got other assets to keep your portfolio afloat.
As Covid-19 has shown us, markets can crash overnight. If you have been investing exclusively in Singapore securities, it could be time to add securities from overseas markets to your portfolio.
US stocks are one popular option. Why ‘Murica? Well, they have the largest stock markets in the world, with the New York Stock Exchange (NYSE) leading the pack. This means there’s a massive variety of stocks across sectors, including big names like Apple and Amazon that have long staying power.
Changes to the US markets tend to affect global markets like the epicentre of an earthquake. For instance, whenever the Federal Reserve raises US interest rates, interest rates in Singapore tend to follow suit, making it harder to take out and repay loans.
Borrowing money becomes more expensive and people can’t spend as much money as before. This tends to have a negative effect on stock prices and dividends (except for the financial sector), since nobody has the money to buy new iPhones or eat at an Insta-worthy cafe every day.
Inflation hedge investment tips —
2. Hedge with US ETFs
Exchange-traded Funds (ETFs) can be bought on exchanges in a similar way to stocks. However, there is one key difference. When you invest in an ETF, instead of buying a single security, you are actually buying a whole basket of them.
For instance, if you buy the famous Straits Times Index (STI), you’re actually buying a basket of stocks of the top 30 companies in Singapore. Putting your money in 30 different companies might be less risky than buying stocks in only one company. After all, when you’re on Tinder, you don’t only swipe right on one person.
When it comes to inflation, owning a basket of stocks through an ETF can be one way to hedge against the risk of uneven inflation.
For instance, the rise in oil prices is likely to have an outsize effect on sectors like transportation. So, if you put all your money in ComfortDelGro, you might soon be taken for a ride. On the other hand, if you buy the STI, of which ComfortDelGro is one of 30 constituents, your risk can be hedged by the other companies in the basket.
When it comes to ETFs, the US market has a humongous selection, including some of the biggest-name ETFs in the world, such as the SPDR S&P 500 Trust ETF, which is the world’s largest ETF and includes Apple, Microsoft and Amazon. Other popular US ETFs include ProShares UltraPro QQQ, which includes Google and Facebook/Meta, and Financial Select Sector SPDR Fund, which includes Berkshire Hathaway and JP Morgan Chase.
Big ETFs often act as a barometer for an entire economy or sector. If a particular country’s economy or a particular sector continues to grow, the ETF should accrue in value over the long term. ETFs can thus hedge against risk by letting you ride on overall economic growth without having to bet on individual companies.
Inflation hedge investment tips —
3. Hedge with US options
If you’re a more advanced trader, you might already have tried trading options. Options can act like “insurance” against risks in your portfolio.
Options are derivatives pinned to an underlying asset. When you buy an option, you are buying a contract which lets you buy or sell an asset at a certain price and within a certain timeframe. Whether you exercise the option depends on whether the asset’s price movement is favourable to you.
If you’re holding on to an asset that you think is risky, you can buy an option to hedge against the risk.
For example, let’s say you have bought ABC stocks for $12 per share, but don’t know whether the share price will go up or down.
In that case, you can buy a put option, consisting of a contract that says you can sell the stock at a particular price within a certain timeframe. You thus “lock in” a relatively attractive price, that will hedge your risk should your share price fall below that amount.
Now, let’s say your put option lets you sell the shares for $10 within 6 months. One month later, if your share price falls to $6, you can exercise your option and sell them at $10 instead, making a smaller loss than you would have if you had panic sold them at $6.
Conversely, if your share price goes up, you don’t have to exercise the option. You do, however, have to pay the stock option price or premium.
Other than helping you hedge against risk, options can also help you earn extra revenue from existing holdings if you get the price movement right. You can sell options and collect the “insurance” premiums. If you are able to do this successfully, you could potentially bolster your portfolio earnings, making your portfolio even more inflation-proof.
Inflation hedge investment tips —
4. Hedge with dollar cost averaging
Dollar cost averaging is an investment method which involves putting in fixed sums of money at regular intervals, regardless of market conditions. So, you might, for example, decide to invest $200 per month in your favourite ETF.
The idea is that over time, the consistency with which you invest helps you ride out the ups and downs. Your fixed amount invested means you buy more units when the market is down and vice versa. If you’ve got a diversified portfolio that reflects economic or sector growth, you should see gains in your portfolio over the long term.
Dollar cost averaging (DCA) might be suitable for those who don’t have a big lump sum of cash or are worried about volatility. With this method, you can start investing your cash right away instead of waiting years to have “enough”. By preventing your cash from lying idle, dollar cost averaging can also help you slowly but surely hedge against inflation.
With moomoo, it’s possible to DCA with ease because of competitive fees with lifetime $0 commissions on US stock. Thus, it costs practically less than US$1.50 to trade, say, 500 shares.
Inflation hedge investment tips —
5. Employ the help of tools
Another way to protect your investment portfolio from inflation is through the use of analytics tools offered by investment brokerages such as Futu SG (moomoo). The sharper your analysis and market knowledge, the more effectively you’ll be able to invest.
The moomoo app offers a rich variety of tools to help you improve your trades. These include stock screeners which let you see at a glance and filter stocks according to key stats, 24/7 news so you can stay updated on what’s happening in the markets, and a vibrant community that lets you learn from other users.
In times of high inflation and bad market conditions, try to master the tools on the platform so you can unearth potential opportunities and invest more strategically.
Could now be the best time to enter the US market?
The US market is facing a slump at the moment. The Dow Jones Industrial Average has been on a downward trend since the third week of March, and stocks are all in the red.
That means now is the time to monitor the market and look for the right moment to pick up some stocks at a discount. Buying your shares at a low price will help you maximise your future earnings when you sell them, and also means hedging against inflation will be more effortless in future when the stock price rises.
In spite of the opportunities the Aladdin’s Cave of a US market might offer, it goes without saying that you should do your own due diligence and research before investing. It is best to pick stocks with strong fundamentals for a stable and possibly long-term foothold.
To sweeten the deal, Futu SG (moomoo) now offers $0 commission trading* for US stocks, which further lowers the cost per share and maximises your future earning potential.
How is moomoo able to implement $0 commissions?According to Futu SG (moomoo), they are able to implement $0 commissions as parent company Futu Holdings has substantial net assets. It was US$2.69 billion (approximately HK$20.99 billion) in 2021, for example. In addition, Futu (moomoo)’s fully online model has the inherent advantage of allowing the company to find ways to reduce costs and increase efficiency in its operations for the benefit of investors. As a one-stop, fully online tech-driven brokerage, Futu (moomoo) does not have an offline presence. This ensures that its fixed costs are more manageable than those of traditional brokerages and that it can serve as many clients as possible without setting up offline outlets, let alone increasing the number of outlets. As the number of clients increases, the marginal cost of doing business decreases, thus making it more profitable for Singapore investors. This is one of the reasons why Futu is able to offer commission-free trading. For this reason, moomoo has decided to implement a permanent commission-free strategy in the Singapore market, putting customer experience first and living up to its mission of “making investing easier and not alone”. |
How to buy US stocks on the moomoo app in 3 simple steps
- Open the moomoo app and select [Buy].
- Key in the ticker symbol, quantity and order type.
- Review your order and select [Place Trade].
New users enjoy a one-year waiver on platform fees, making trading even more affordable!
To start trading with lifetime $0 commissions* on US stocks plus a free share (worth up to S$1,000), download moomoo and set up your account.
*Terms and Conditions apply.
This advertisement has not been reviewed by the Monetary Authority of Singapore.