Navigating the Stock Market During High Inflation: Top Tips from BDO Securities

Inflation has been on the rise, leaving stock market investors to question what the golden rule is when it comes to investing in stocks. While there may not be a single golden rule for stock market investing, BDO Securities offers several key pieces of advice that could help investors make informed decisions and mitigate risks.

Do your assignment

Doing your homework is important for any investor looking to make a successful stock purchase. Researching companies before investing can provide insight into their financial standing and performance, helping you determine whether or not they are worth the risk.

This thorough research should include an evaluation of the company’s financial statements, industry trends, competitor analysis, management evaluation, and macroeconomic environment. Knowing what type of products and services these companies offer can also be beneficial in recognizing their potential growth trajectory.

Additionally, investors should be aware of any changes or news related to the company as this may impact its stock price. Staying up-to-date with news related to the company and industry can provide further insight into how its future may fare.

Plan and time your entry and exit levels

Timing is another critical factor in stock market investment success. Setting appropriate entry and exit levels, as well as a timeline of when you plan on buying or selling shares is vital in ensuring that you get the highest possible return on investment while managing risks appropriately. Any gains made while investing can quickly be wiped out with one bad investment decision if made at the wrong time.

Investors should also identify good buying opportunities by keeping an eye out for lower prices within a particular trading range or after a sharp plunge in prices due to external factors like natural disasters or political tensions.

On the other hand, when exiting the stock market, investors must carefully select the right time so as not to lose out on potential gains although in some cases an immediate exit may be necessary depending on how volatile the market is at that particular moment in time.

Additionally, watching out for signs such as changes in macroeconomic conditions, customer sentiment, and management developments can help you stay one step ahead of the competition when it comes to making decisions regarding your investments.

Manage your risks

Managing risk properly is critical for any investor looking for long-term returns from their investments instead of short-term gains only — after all, stock markets are volatile and therefore unpredictable most of the time.

To reduce risk in volatile markets, stop-loss orders can help protect investors from incurring huge losses if a stock should unexpectedly drop significantly in price fast as well as limit orders which allow investors to set a maximum price that they would be willing to pay for a stock during purchases or a minimum floor price at which they would be willing to sell during sales transactions.

In addition, diversifying one’s portfolio is always advisable as it minimizes risk by spreading the wealth among different asset classes like stocks, bonds, and cash equivalents such as money markets funds or certificates of deposits (CDs). By doing this, investors give themselves more breathing room in case of a market dip because not all stocks will suffer equally.

Investing smaller amounts across multiple stocks rather than betting heavily on one can also be a sound strategy as it helps minimize overall risk exposure without sacrificing potential returns from each individual stock pick.

Overall, although there isn’t a single golden rule for stock market investing that works best for every investor given constantly shifting economic conditions and financial markets volatility; observing these three basic principles will enable you to stay ahead of the game when engaging in stock market investing during times of high inflation rates.

The Effect of Inflation on Stock Market Investing

The current economic state has had a major impact on the stock market, and inflation is at the heart of it. Inflation is used to measure the rate of increase in prices for goods and services within an economy over time.

In 2023, BDO Securities forecasts inflation to gradually ease to 5.0% from an average of 5.7% this year.

When inflation is high, it diminishes consumer spending which can have a domino effect on companies’ profits and therefore put downward pressure on stock prices.

“The ongoing geopolitical tensions, supply chain issues, and US Dollar strength may keep inflation elevated. Nonetheless, we will keep watch of signs of easing inflation (i.e. sustained drop in key commodity prices like oil) as it is positive for stocks and may induce a market rally,” said BDO Securities, a brokerage firm which is a wholly-owned subsidiary of BDO Unibank’s investment banking arm BDO Capital & Investment Corporation.

For investors with different risk profiles, BDO Securities recommends having more exposure to fixed-income assets for more conservative investors, while for those with more aggressive risk profiles, equity investments should be given greater weight in one’s portfolio mix.

Inflation is also known to have an impact on interest rates – when inflation rises, so too do interest rates as banks will try and incentivize saving by offering consumers better deals. As these interest rates increase it can cause stocks’ yields (the profits they generate) to become less valuable compared with other financial instruments that offer higher rates of return. This may cause some investors to shift away from certain stocks and towards alternative investments offering higher yields; leading them to potentially miss out on long-term gains within the stock market if those stocks continue performing well despite this change in yield comparison.

Another factor that ought not to be overlooked when discussing the effects of inflation are currency exchange rates – fluctuations within countries’ foreign exchange markets can create volatility within international markets leading prices of different stocks across different nations to change rapidly depending upon how much capital is circulating within them at any given time.

Unfortunately, many stock market investors in the Philippines have felt the effects of inflation, leading to losses or stagnating returns on their investments. As someone who has been affected by this economic downturn myself, I understand the difficulty in seeing your hard-earned money erode away due to inflation. That’s why it’s important to have a game plan when investing in the stock market during times of high inflation rates.

Do your homework, plan your entry and exit levels, diversify your portfolio and manage risks to get the most out of stock market investing during periods of economic downturns. With these tips in mind, investors can take greater control over their finances and minimize their losses while potentially profiting from the deflationary impact of high inflation.