When people think about investing, the word “risk” usually dominates the conversation. You’ve probably asked yourself:
“What if I lose money? What if I invest at the wrong time?”
But here’s something most people overlook: Risk is not absolute — it’s a function of time.
At Boring Investment, we dove deep into the historical data of the S&P 500 and found that if you invest with a long-term mindset — and use the right strategy — risk virtually disappears.
We have used S&P 500 index instead of Boring Investment stocks because of historical information availability (for S&P 500 data starts in 1950). However, in the article linked we compare S&P 500 index returns with Boring Investment strategy to show how you can beat the market when you don’t invest in “sexy” companies.
At the end of this article you’ll understand why we conclude that, if a robust investment strategy is followed, financial risk is almost zero when you invest for a sufficient number of year and forget to try to time the market.
The Analysis: How Often Would You Have Lost Money in the S&P 500?
We analyzed data from 1950 to 2024 using two approaches:
Lump Sum: investing all at once at the beginning of the period.
Dollar Cost Averaging (DCA): investing gradually over time (daily, weekly, monthly, depending on the holding period).
We tested different investment horizons — from 1 day to 20 years — and calculated the percentage of time each strategy resulted in negative returns.
🔻 Percentage of Negative Periods – Lump Sum (investing all at once at the beginning of the period)
Holding Period
% of Losses
1 day
46.25%
5 days
43.09%
1 month
38.20%
1 year
25.59%
5 years
15.15%
10 years
6.09%
15 years
0.00%
20 years
0.00%
The longer your holding period, the lower the chance of losing money. After 15 years, there’s no historical precedent for a loss.
What Happens When You Use Dollar Cost Averaging (DCA)?
Here’s where it gets even better.
With DCA, where you invest periodically (investing same amount across time, e.g. monthly), the probability of loss drops significantly across all timeframes.
Holding Period
Lump Sum (%)
DCA (%)
1 day
46.25%
46.25%
5 days (DCA is applied daily)
43.09%
41.90%
10 days (DCA is applied daily)
40.82%
39.44%
1 month (DCA is applied weekly)
38.20%
37.02%
3 months (DCA is applied weekly)
33.28%
31.18%
6 months (DCA is applied weekly)
29.33%
27.24%
1 year (DCA is applied monthly)
25.59%
21.65%
3 years (DCA is applied monthly)
14.12%
11.26%
5 years (DCA is applied monthly)
15.15%
6.65%
7 years (DCA is applied monthly)
7.24%
0.48%
10 years (DCA is applied monthly)
6.09%
0.00%
15 years (DCA is applied monthly)
0.00%
0.00%
20 years (DCA is applied monthly)
0.00%
0.00%
🔵 Bottom Line: DCA Reduces Risk — Almost to Zero at 7 Years, and Literally to Zero After That
Dollar Cost Averaging doesn’t just reduce risk — it crushes it.
By 5 years, DCA already cuts your chance of loss in half compared to Lump Sum. By 7 years, the percentage of negative periods drops to just 0.48%.
Why isn’t 7 years holding period zero? Two years explain it all: 1980 and 1981.
Out of all the data from 1950 to 2024, only two years — 1980 and 1981 — led to negative 7-year DCA returns.
Here’s what happened:
Inflation was out of control in the late 1970s, reaching over 14%.
The U.S. Federal Reserve, under Paul Volcker, raised interest rates above 20% to fight inflation.
This triggered two consecutive recessions in 1980 and 1981-82.
Markets struggled for years under tight monetary policy and slow economic recovery.
As a result, investors who started DCA in 1980 or 1981 experienced subdued returns over the following 7 years — just enough to end slightly negative.
But think about it — that’s 2 years out of 75.
In other words: 97.3% of the time, 7-year DCA investments were positive, and 100% of the time at 10 years or more.
How Many Years Actually Had Negative Periods?
Holding Period
Years Analyzed
Negative Years / Frequency – Lump Sum
Negative Years / Frequency – DCA
1 year
75
48 (64%)
35 (47%)
3 years
75
21 (28%)
13 (17%)
5 years
75
20 (27%)
8 (11%)
7 years
75
11 (15%)
2 (3%)
10 years
75
11 (15%)
0 (0%)
15 years
75
0 (0%)
0 (0%)
20 years
75
0 (0%)
0 (0%)
DCA slashes the number of years with negative outcomes — and makes long-term investing incredibly safe.
📊 Visualizing the Risk
Most losses happen during specific crises:
The stagflation of the 1970s
The Dot-com bubble (2000)
The 2008 financial crisis
The 2020 COVID crash
But if you stayed invested long enough, the market always recovered — and rewarded your patience.
Now, let’s add an important layer to our analysis, how about returns?
Full Results: Negative Returns & Annualized Performance
Holding Period
DCA % Negative
DCA Mean
DCA P25
DCA P50
DCA P75
1 day
46.26%
7.8%
-102.7%
12.4%
127.6%
5 days
41.91%
7.8%
-40.1%
15.5%
61.1%
10 days
39.49%
7.9%
-24.1%
14.2%
45.4%
1 month
37.06%
7.9%
-13.0%
12.7%
33.4%
3 months
31.28%
7.8%
-4.5%
10.1%
23.5%
6 months
27.43%
7.7%
-1.8%
9.9%
18.9%
1 year
21.95%
7.7%
1.3%
8.8%
16.7%
3 years
11.73%
7.5%
3.6%
8.6%
11.4%
5 years
7.12%
7.5%
2.5%
8.2%
11.2%
7 years
0.53%
7.3%
3.2%
8.3%
10.7%
10 years
0%
7.1%
3.7%
7.5%
10.4%
15 years
0%
7.0%
5.2%
6.7%
9.4%
20 years
0%
6.8%
5.1%
6.8%
8.3%
🏦 How Does This Compare to “Risk-Free” Treasury Bonds?
Let’s say the average 10-year Treasury Bond yields ~4% annually. It’s considered “risk-free” because of government backing.
But here’s the thing:
At 10 years, the S&P 500 with DCA never lost money historically.
And not only that — the median annual return was 7.5% (DCA), almost double the bond yield.
Even at P25 (worst quartile), returns were around 3.7%, almost matching bonds with equity upside.
Conclusion? Over long horizons, the stock market becomes practically “risk-free” in outcome, but with far better returns.
The real “risk” is not time — it’s short-term thinking.
Investing Risk = Time. Period.
This leads to a crucial insight:
Investment risk isn’t about volatility. It’s about time.
If there are zero 10-year periods with negative DCA returns, how risky is investing, really? Almost inexistent I would say.
The Real Question Isn’t “What’s Your Risk Tolerance?”
It’s this:
What’s your investment time horizon?
If you can ride out short-term noise, you don’t need to fear risk. Time is your best hedge.
Investing Isn’t About Timing. It’s About Enduring.
You won’t predict the market. But you don’t have to. All you need is a plan, consistency, and the discipline to hold through downturns.
At Boring Investment, we help you:
Invest safely and consistently, with minimal effort.
Use data, not emotions.
Let compound interest and time do the heavy lifting.
Ready to invest the boring (but effective) way?
👉 Try our Investment Platform to invest wisely theboringinvest.com 👉 Subscribe for more no-fluff, data-backed insights in the form below
In a previous article we taught you how to open an account in Interactive Brokers. The process of opening an account, although it may seem long or complicated, is actually very simple. That’s why today, we’ll show you some common questions related to frequent issues when opening an IBKR account that we aim to answer.
How long does it take to open an IKBR account?
On the one hand, it should take around 20 minutes of your time to fulfill the application with all your personal information required and account setup.
On the other hand, it usually takes 3 business days for the Interactive Brokers team to approve your application – if not, they will contact you to share what went wrong and why they are rejecting it.
It may take longer than expected if you submit blurry or incomplete documents, provide an address that doesn’t match your ID or miss required tax information (such as a TIN for U.S. taxpayers). So make sure you are accurate with the information you upload.
Note that you can always fund your application to prioritize its review. And if for any reason your application is not approved, the funds will be returned.
Why is it important to fund your account?
By funding your account, you are putting money in the broker. It enables access to trading and gets you ready to invest and generate profits. The initial deposit acts as the foundation of your trading activities and is necessary to begin using the platform.
Without funding, your IBKR account remains inactive, and you won’t be able to execute trades or invest in the various financial instruments. You may also find limited features or no trading data.
How do you know the funds are credited to your account?
The date funds will be credited to your account depending on the method of funds transfer you use. To check the latest status of your deposit you may choose any of the following.
View a recent Activity Statement for details on when your deposit will be available for trading.
Why can your application get rejected?
Interactive Brokers (IBKR) can reject account applications for several reasons, often tied to the applicant’s failure to meet certain eligibility criteria or incomplete application processes. Here are some common issues:
Incomplete or Incorrect Information: Applications with missing or incorrect details -such as errors in personal identification or address documentation- may be delayed or rejected. It’s crucial to ensure all required fields are filled out accurately and supported by valid documentation.
Failure to Meet Eligibility Requirements: Interactive Brokers has specific eligibility criteria depending on the account type and applicant’s country of residence. These may include minimum net worth, income requirements, or trading experience. Applicants who don’t meet these thresholds, particularly for professional or margin accounts, are likely to face rejection.
Issues with Documentation: If the applicant fails to provide acceptable proof of identity, address, or bank account information, the application can be delayed or denied. Similarly, discrepancies between submitted documents and the application details can lead to rejection.
Regulatory Restrictions: Some countries impose restrictions on accessing international brokerage services like IBKR. If regulatory compliance requirements aren’t met, the account may not be approved.
To avoid these issues, applicants should carefully review IBKR’s requirements, double-check the accuracy of their application, and promptly respond to any follow-up requests for additional information or clarification.
Are there residency restrictions?
Yes. While IBKR operates globally, certain countries may impose restrictions or additional requirements based on local regulations. Applicants from countries with strict financial compliance laws might face delays or additional documentation requests.
If Interactive Brokers doesn’t work in your country, don’t worry, you still can invest in reliable brokers: check our previous article about the Top Biggest Brokers for each Country.
Problems with the fiscal number or TIN
TIN means tax identification number, and it is a unique identifier assigned to individuals and entities for tax purposes.
You may find some issues related to the following aspects:
Invalid TIN Information: typographical errors, invalid TIN formats or mismatch with official records (remember that The TIN provided must match the records held by the relevant tax authority).
Missing TIN: Applicants that are minors or non-taxpayers in their home country might not have a TIN, also, certain jurisdictions issue temporary TINs, which might not be accepted by IBKR as valid identification.
International Tax Residency: Applicants with tax residency in multiple countries might be required to provide all relevant TINs. If a user is residing outside their home country, providing a TIN from a different jurisdiction might not align with their stated residency.
FATCA/CRS Compliance Issues: On the one hand, FATCA (Foreign Account Tax Compliance Act) is a U.S. regulation aimed at preventing tax evasion by U.S. taxpayers holding financial assets outside the country, so for U.S. citizens or residents, failure to provide a valid Social Security Number (SSN) instead of a TIN may lead to compliance issues. On the other hand, CRS (Common Reporting Standard) is an international framework for the automatic exchange of tax information between countries, so non-U.S. residents need to provide accurate TINs to comply with international tax reporting regulations.
Tax forms
During the account-opening process, IBKR will ask for your tax status. Based on your residency and citizenship, you will be prompted to complete the W-8BEN or W-9 form electronically.
The W-8BEN form certifies that you are not a U.S. citizen or resident for tax purposes, and it prevents unnecessary withholding tax on income that might apply to U.S. based investments. If incomplete or not submitted, IBKR may apply the default withholding tax rate of 30% to applicable U.S.-source income, even if you’re eligible for a reduced rate.
The W-9 form is required for U.S. residents or citizens, and it provides IBKR with your Taxpayer Identification Number (TIN), such as your Social Security Number (SSN) or Employer Identification Number (EIN). Failing to submit this form may result in the account being flagged, and the IRS may impose backup withholding on income (currently at 24%).
How to make a transfer within the USA to Interactive Brokers?
From the Client Portal go to the Transfer & Funds section and select Transfer Funds
Choose the deposit type and the option Bank Wire (US) for transfers within the United States
IBKR will provide the necessary banking details: name of the receiving bank, routing number (might be ACH or ABA indifferently), IBKR’s account number and your unique reference code (essential to identify your transfer)
Make the transfer from your bank account with the provided details – make sure you include the unique reference code in the notes or description field
Check the transfer status from the IKBR Transaction History section. Note that domestic transfers within the USA usually process within 1-2 business days.
How to deposit EUR to Interactive Brokers?
IBKR`s bank account for EUR is eligible to receive EUR transfers either via SEPA or International Bank Transfer (SWIFT).
They will provide you with our IBAN (International Bank Account Number) and the SWIFT code of their bank account upon completing the deposit notification in Client Portal.
If your bank is located within the EU (and certain other countries) you will likely use the SEPA transfer method. Otherwise, you will need to use International Bank Transfer (SWIFT) method instead.
How to transfer funds out of IBKR?
Log into Client Portal
Select Transfer & Pay followed by Transfer Funds
Click Make a Withdrawal
Select an instruction from the Saved Withdrawal Information section, or select the Currency from the currency list to see eligible methods
Click Use this Method next to your desired method and complete the subsequent screens to complete your request.
Are there requirements in order to qualify for trading permissions?
Yes. The trading permissions request can take 24 to 48 hours for approval. However, in order to be approved, your financial profile (e.g. age, liquid net worth, investment objectives, product knowledge and prior trading experience) must meet IKBR qualifications.
How to update your financial profile?
Log into Client Portal
Click on the User menu (head and shoulders icon in the top right corner) followed by Settings
Under Account Settings find the Account Profile section
Click on Financial Information, rectify your information and confirm.
Where to get help?
If you are having troubles with the process, you can always ask for guidance from the IKBR team or from us, Boring Investment team.
In this article, we will explore the largest brokers across major economies worldwide, so you can know where to invest by having in consideration the top biggest brokers for each country.
The global landscape of brokers is highly diverse, with each country presenting its own set of dominant players shaped by local regulations, market dynamics, and investor preferences.
Understanding the biggest brokers in different regions helps investors make informed decisions about where to invest. It’s useful for finding a reputable broker within your own country that provides security and confidence. It’s often beneficial to invest through brokers based in your own country, as not all brokers have a presence in every nation, and each country typically has a unique regulatory and tax framework.
If you are just getting started in this passionate world of investments and don’t know how to select your broker or open a broker account, check our first steps section – where we show you how to start investing in a simple way, accessible to everyone.
Of course, we couldn’t consider every country in the world, so we have made a thoughtful selection by including 14 countries in our analysis as paradigms of the diversity of brokerage offer. These are the top biggest brokers for each country.
USA
JAPAN
UK
GERMANY
INDIA
CHINA
BRAZIL
Vanguard Group
Nomura Securities
Interactive Brokers
Deutsche Bank
Zerodha
Futu Holdings
XP Investi-mentos
Charles Schwab
SBI Securities
Saxo
Flatex DEGIRO
ICICI Direct
Tiger Brokers
BTG Pactual
Fidelity Investments
Rakuten Securities
eToro
OnVista Bank
HDFC Securities
CICC
ModalMais
J.P. Morgan
Monex Group
XTB
DKB
Kotak Securities
GF Securities
Rico Investi-mentos
Merrill Wealth Managmnt.
Mizuho Securities
Plus500
Comdirect
Upstox
Haitong Securities
Clear Corretora
AUSTRALIA
CANADA
MEXICO
SOUTH AFRICA
TURKEY
SPAIN
FRANCE
CommSec
Questrade
GBM
Standard Bank Online Share Trading
Garanti BBVA Yatırım
Renta 4 Banco
Boursorama
IG Group
RBC Direct Investing
Actinver
EasyEquities
İş Yatırım
Bankinter Broker
BNP Paribas Personal Investors
CMC Markets
TD Direct Investing
Monex
PSG Wealth
Ziraat Yatırım
Self Bank by Singular Bank
Crédit Agricole Titres
SelfWealth
Scotia iTRADE
Citibanamex
Nedbank Private Wealth
Halk Yatırım
BBVA Trader
SG Markets
NabTrade
BMO InvestorLine
Banorte
EasyEquities
Yapı Kredi Yatırım
Santander
Fortuneo
As you can see, there is a high-variety of brokers around the five continents. Each with its own particularities in trading preferences, regulatory requirements, and investors behavior.
Each country’s legal and tax frameworks may require specific conditions, so in general, it’s preferable to select a broker with local presence in your country of fiscal residence.
But now, how do we determine the biggest brokers? By having in consideration the following aspects:
Parameters to measure the size of brokers
Assets Under Management (AUM): The total value of assets that the broker manages for its clients. A larger AUM typically indicates more trust from clients and a strong reputation in the market.
Number of Clients/Accounts: The total number of active clients or brokerage accounts provides insight into the firm’s client base size. Larger brokers generally have more accounts, indicating widespread use by investors.
Revenue and Profitability: A broker’s financial performance, including total revenue and profit margins, reflects its operational strength. Revenue comes from various sources such as trading commissions, advisory fees, and interest on margin accounts.
Market Share: The broker’s share of the trading market, both in terms of retail and institutional clients, is another indicator of its dominance. High market share often corresponds with a firm’s size and influence.
Trading Volume: The volume of trades executed by the broker indicates its activity level. Higher trading volume, especially across different asset classes (stocks, bonds, etc.), highlights the broker’s ability to handle a large number of transactions efficiently.
Geographic Reach: A broker’s global footprint, including the number of countries it operates in, also affects its size. Brokers with a presence in multiple regions often have broader access to capital markets and a more diverse client base.
Technology and Platform Infrastructure: In today’s digital world, the technology stack and quality of trading platforms (user experience, speed, accessibility) are increasingly important. Brokers that invest heavily in cutting-edge technology and user-friendly platforms tend to grow faster.
If you are finding this information valuable, check some of our previous articles!
Why is this useful?
You may be wondering how this information can help you make informed investment decisions in a global context.
When considering global investment strategies, understanding the size and impact of brokerage firms in different countries is a key advantage. Knowing the largest brokers by the previously mentioned parameters, can help investors assess credibility, stability, pricing and potential opportunities, not only for portfolio expansion across borders, but also for investing in your own country.
Size matters because larger brokers often offer more resources, tools, and international access to investment markets, providing more diverse and stable platforms for trading.
Evaluating broker size helps in assessing stability, as larger firms generally have more capital reserves and can endure market fluctuations more effectively. In times of financial instability, larger brokers can provide an extra layer of security by being less vulnerable to liquidity risks compared to smaller firms. For global investors, this can be particularly relevant when considering economic downturns or inflation spikes in particular regions. Learn how to beat inflation.
Aside from stability, broker size also influences pricing. Larger brokers often offer more competitive fees and spreads, thanks to their ability to leverage scale and negotiate better prices.
Understanding the biggest brokers in a given market can also be key to accessing new investment opportunities. Large brokers are typically at the forefront of innovation. By identifying the top players in your country, you can align yourself with firms that are leading in terms of technology and product development.
CONCLUSION
In the global context, understanding the top biggest brokers for each country, offers invaluable insight for investors seeking reliable and comprehensive financial services. We hope that knowing the top brokers for each country from the table can help you find a big and reliable broker in your country to invest in a safe and simple manner.
As discussed under the “Parameters to measure the size of brokers,” factors such as assets under management, number of clients, revenue and profitability, market share, trading volume, global reach, and technological capabilities are critical benchmarks to determine the size and reliability of a brokerage firm.
Additionally, this information is highly useful for investors looking to invest in local brokers, or even enter foreign markets and diversify their portfolios. As explored in the section “Why is this useful?” knowing the largest brokers enables investors to identify firms with robust financial stability, a solid reputation, and a wide range of investment products and services.
Ultimately, knowing and having access to these brokers provides investors with greater security, more diversified opportunities, and a pathway to navigate international and national markets with confidence.
We can help you in the process of becoming wealthy. Join us! To learn how and where to invest your money: https://theboringinvest.com/
To invest, it’s necessary to open a broker account where you can make transactions safely and dynamicallyfacilitated by a unified platform. The offer of brokers is increasing with the passing of time and the popularization of investments as a way to become wealthy. Today, we will focus on how to open an account in Interactive Brokers with 6 easy-to-follow steps.
Why Interactive Brokers? We believe it’s a reliable broker where your information and activity will be protected. It’s very intuitive to use and since the beginning of your experience, you’ll realize they take care of their users with the responsibility and seriousness it requires.
If you are just getting started in this passionate world of investments and don’t know how to select your broker or open a broker account, check our first steps section – where we show you how to start to invest in a simple way, accessible to everyone.
STEP 1: Create an account
Here, you just have to create a username and password, and confirm your email address from your email account. After that, you can start completing the application.
APPLICATION
STEP 2: Select an Account Type
In the first section of the application, you have to select the account type that’s more convenient for your needs and goals. The decision will depend on whether you’re applying as an individual making an occasional investment, a professional and frequent trader, or an institutional investor. Let’s suppose you choose the most common individual account, it’s the best suited account for those unexperienced who want to start investing from savings.
Once you’ve selected the account type best suited for you, it’s time to provide your personal information.
STEP 3: About you
In this instance, you have to complete a few steps that contemplate the following information: contact and personal data; identification (ID); employment status and source of wealth; base currency; and three security questions to make your account safer.
By completing your employment status, you’re sharing your occupational situation, it can be employed, self employed, retired, unemployed, etc. Your response might determine your source of wealth selection; if you are employed, the salary option (“income from employment”) will be pre-selected, but you can choose as many as you please as long as they are verifiable sources of wealth for you.
STEP 4: Regulatory
Next, you’ll go through the regulatory section, where you will be required to answer questions related to your investment goals, risk tolerance, and trading experience.
In this step, you configure your trading account by selecting an account type between cash, margin or portfolio margin. If you select margin and portfolio margin there are more requirements that are related to your financial information. So the most simple option is cash – unless you are planning to invest with leverage or other advanced investment strategies.
By providing your income and net worth as well as your investment objectives and intended purpose of trading, Interactive Brokers (IB) make sure you are legally capable to trade the assets of your choice.
You’ll be asked to set your account preferences, indicating your trading experience and permissions (such as access to global markets), so IB can assess your eligibility and tailor the platform to suit your needs, ensuring compliance with regulatory standards.
STEP 5: Account Setup
You’re almost done! The legal aspect is taken care of here: You accept the terms and conditions by reviewing and agreeing to the necessary legal disclosures and documents.
Once you verify your identity and address with a selfie or photo of your id and with your GPS location or another document of your choice, your application will be submitted and approved in a few days.
Finally, when all the steps are completed, IB will review your application. You can monitor your account status directly from your dashboard, where you’ll receive updates on the approval process. And you’ll receive an email notification to confirm that your account is active and ready for use.
Once you have your account approved you’ll be ready to start investing. If you are not sure about how to do it, check our previous article on how to invest in stocks for beginners.
CONCLUSION
In conclusion, opening an Interactive Brokers account is a straightforward process that can be completed in a few steps, from creating an account to receiving the final approval. By carefully selecting your account type, providing accurate personal and financial information, and setting up your preferences, you can tailor the platform to suit your investment needs. Once your account is approved, you gain access to a wide range of global markets and trading tools, making IB a powerful platform for both new and experienced investors.
If you have any doubt about the beginning or the investment process itself, don’t wait any longer and Schedule time with an expert.
We might learn about inflationary periods in books or news, but we definitely experience it at the grocery store. We know inflation is a macroeconomic phenomenon that gradually reduces the value of money, leading to a constant increase in the cost of goods and services, directly impacting saved funds and all sectors of the economy in general.
Today, we’ll focus on how to deal with inflationary periods while investing so we can determine the best investment during inflation.
Investments and Inflation
When prices rise, the purchasing power of our money decreases and our cost of living increases. If you keep your money in your bank account (or in cash), you are losing money.
That’s why it’s necessary to seek assets that can preserve the value of our wealth. Ideally, your investments should have higher returns than the inflationary index. But we know this isn’t always the case, nevertheless, you are still in a more favorable situation than those who don’t invest. You don’t want to see the value of your money decreasing in front of your eyes.
To learn how your money loses value over time due to inflation check our previous article.
There are a lot of sectors where you can invest, we will recommend a few.
The best investments during inflation
Stocks: the best strategy against inflation. Historically, 78% of the time stocks outpaced inflation, more times than a bond portfolio. Even the fall down that stocks may have by product of the increase in interest rates, is followed by a comeback from the loss, eventually surpassing the inflation levels. It’s important to consider companies with growth potential, companies with strong pricing power and companies that can raise their prices in response to inflation, which can lead to higher revenues and profit.
Real estate or REITs: property is a finite resource, and as the cost of goods and services rises, so does the value of land and buildings. You can invest in real estate directly – which requires a higher first investment and higher maintenance costs. Or through a REIT (Real Estate Investment Trust); over the last decade, the MSCI U.S. REIT Index has had an average annual return of more than 10%.
Commodities that work as value reserves: precious metals, like gold and silver, tend to rise in value -because of their durability and rarity- as inflation increases, providing a shield against the erosion of the purchasing power of money. This is why they are good options for keeping value during inflationary periods.
TIPS (Treasury Inflation-Protected Securities): government-issued security bonds designed to adjust with inflation levels. Their unique structure allows them to adjust payments based on the inflation data; if inflation increases the interest rate you earn on these bonds increases as well, ensuring that you maintain your purchasing power even when the general price level is increasing.
The worst investments during inflation
As well as there are the best, there are some assets we wouldn’t recommend you:
Cash or savings: in inflationary periods, the value of cash diminishes as inflation increases and the cost of living augments, resulting in a loss of wealth for those who hold large amounts of cash. If you have your savings in a bank account it’s the same story.
Fixed-rate debt securities: the income they generate remains constant, regardless of changes in inflation, so when inflation increases, the purchasing power of the interest payments diminishes. For example, if you own a bond that pays 3% annually and inflation rises to 6%, the real return on your investment is negative, as the income generated is not enough to keep up with the increased cost of living.
Companies with weak pricing power: companies that cannot pass on their costs to consumers by raising the prices of their goods and services when their costs increase due to inflation. If they do increase their prices, demand for their products decreases because there are multiple substitutes available on the market.
Commodities that don’t work as value reserves: agricultural products like corn or coffee are not a good idea to invest in during periods of inflation because they are perishable, which affects their long-term value. Also, their prices can be highly volatile, influenced by seasonal changes, weather conditions, and short-term supply and demand fluctuations.
Conclusion
Navigating the financial landscape during inflationary periods requires careful consideration of how different assets respond to rising prices. As we’ve discussed, inflation can erode the purchasing power of money, making it essential for you to strategically invest your money to maintain and grow your wealth.
On the one hand, assets like stocks, real estate, commodities, and TIPS consolidate as the best investments during inflation. These tend to either appreciate in value or offer returns that outpace inflation, making them effective tools for preserving wealth.
On the other hand, holding large amounts of cash or investing in fixed-rate debt securities are bad ideas during inflationary periods, as these assets typically lose value in real terms when prices rise. The key is to focus on investments that either directly benefit from inflation or have built-in mechanisms to adjust for it.
In conclusion, stocks consolidate as the best investment during inflation. With the power of compound interest, a diversified portfolio, and the adherence to a long-term investing plan you can not only go through market fluctuations but also win against inflation and preserve or augment your wealth.
If you want to start investing in a friendly platform with the help of professionals and beat inflation, join us.
