Investing for High Inflation and Slow Growth

Inflation and slowing economic growth are a real devil's brew. In isolation, each is bad enough. Together, they are truly toxic.

They would seem to contradict each other. Normally, inflation is a byproduct of too much economic activity—a case of surplus cash chasing around an insufficient supply of goods. In theory, that should mean slowing growth leads to slowing price gains. That hasn't been our experience, though, as annual inflation rates have stayed high—thanks to a mix of strong job growth, rapidly shifting COVID-era spending patterns, and supply chain problems—even as the economy has struggled this year.

That has been a problem for anyone trying to protect the pot that holds their life savings—no easy task when slowing growth is killing investment returns, and every dollar of savings seems worth a smaller portion of goods.

Some commentators have even started warning of the risks of "stagflation," a portmanteau coined in the late '60s combining (economic) stagnation and inflation. However, that may be a worry too far. Although inflation is high and the economy showing signs of faltering, the strength of the job market puts our current travails in a different category than the "classic" stagflation of the '70s.

It's still tough going, though, and investors may be wondering what they can do to make it through. Here, we'll look at a few possibilities.

Any good options?

Economic growth and inflation rates are always changing, and different asset classes can prove their worth under different conditions. Some offer returns or income when the economy is growing. Others work best when inflation is rising or the economy is slowing. That's one reason to hold a bit of each—having a mix can generally help you prepare for any environment.

Source: Schwab Center for Financial Research.

For illustrative purposes only.