How to make money in a deflationary period

Falling prices and decreasing asset values are symptoms of economic deflation. As the economy slows, demand for goods and services drops and employees are laid off as production slows. Higher unemployment means fewer people with money to spend, which kicks off a new round of layoffs and production slowing.

During deflationary times, investors should focus on capital preservation instead of looking for high yield. If you are interested in metals, gold historically offers investors a safe haven during deflationary times. Silver and copper prices, however, fall as industrial use and new housing construction demands decline.

Confine your stock market investing to deflation-proof sectors including utilities, health care and agricultural goods. Select utilities with a strong balance sheet, gains that exceed the Dow Jones Industrial Average, a history of regular dividend payments and increased earnings and operating margin growth.

Use your stock screener to select the best stocks for each sector. Consider investing in inverse exchange-traded funds that are designed to profit from the deflating economy. ProShares ETFs are highly leveraged at percent, making them a more risky investment. Limit your risk while increasing your bank account balance by investing in bonds. You can also invest in short term tax-exempt bond funds to lock in a higher yield while lowering your taxable income.

As an alternative, mutual funds have foreign bond funds that will help diversify your portfolio and offer better yields. You can use your bond screener to find no-load bond funds with low management fees that carry a good interest rate. Consider which deflation-friendly investments fit your trading philosophy.

Use your online account to open a trade for stocks and ETFs. Wait until your account is open to place your trade for domestic or foreign bond funds. You can purchase U. She received a bachelor's degree in business administration from the University of South Florida. Each week, Zack's e-newsletter will address topics such as retirement, savings, loans, mortgages, tax and investment strategies, and more.

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Step 1 Keep your cash. Step 2 Confine your stock market investing to deflation-proof sectors including utilities, health care and agricultural goods.

Step 3 Consider investing in inverse exchange-traded funds that are designed to profit from the deflating economy. Step 4 Limit your risk while increasing your bank account balance by investing in bonds. Step 5 Consider which deflation-friendly investments fit your trading philosophy. Items you will need Online trading account. Tip Keep your investment goals focused on preserving your capital first and the yield amount second.

Warning Avoid keeping your cash tied up in stock shares or corporate bonds. Business bankruptcy rates increase the longer the deflation continues.

References 3 Economy Watch: Effects of Deflation Reuters: Gold as a Hedge Against Deflation CBS News Money Watch: How to Protect Yourself If Prices Fall. About the Author Based in St. Recommended Articles How to Invest in Indie Films Can You Write Off Life Insurance Payments? Can I Claim My Parents on My Tax Return If I Insure Them? Examples of Short Term Debt.

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