SteadyOptions is an options trading forum where you can find solutions from top options traders. TRY IT FREE!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

Inflation-Proofing Your Equities Portfolio


All investors need to be wary of inflation. After all, it poses a risk to your portfolio, and it can adversely affect your bottom line. To be fair, inflation isn’t necessarily bad all the time. As the MoneySense article ‘How to Inflation-Proof Your Portfolio’ notes, inflation can be a positive, especially given today’s economic climate.

Portfolio manager Stephen Lingard explains, “If you have abnormally low growth and very low inflation then a little bit of demand inflation can be helpful because it means companies can raise prices.” Consequently, earnings will have the chance to increase again, perhaps even back to 2015 levels.

Even then, inflation is a threat to any investor. Our previous post ‘Digging Deeper into the Inflation Threat’ makes it clear that there is “no investment professional under the age of 60 that has managed money in an inflationary era” and that “no one under 60 has managed money in an environment where stocks and bonds sell off simultaneously for a prolonged period.” 

It is crucial to inflation-proof your equities portfolio. The best way to do so is by considering preferred shares. They are fixed income alternatives that took a beating when interest rates fell as inflation went on a downturn. But with inflation starting to spike, interest rates are likely to go up once more, and that will allow preferred shares to recover fairly well. Again, it is worth keeping in mind that banks tend to raise interest rates to slow down inflation. This measure explains why the Ontario Securities Commission brings down stock prices, much to the disadvantage of investors and their equities.

The reverse, however, is true for preferred shares, whose price tend to rise in line with rising interest rates. To this end, it is therefore imperative for any investor to keep tabs on the Bank of Canada’s (BoC) response to inflation. FXCM's economic calendar shows that the last BoC Interest Rate Decision was announced on March 6. In the January 9 announcement, the BoC kept the interest rate steady at 1.75%. This does not mean, though, that the rate will remain steady this March, or moving forward. Policymakers, in fact, have already forecast more interest rate hikes in the future, as a way of keeping inflation into a neutral range of 2%. This forecast makes preferred shares an obvious inflation-proofing alternative to consider. 

When it comes to preferred shares, ETFs are highly recommended. They provide easy access to preferred shares, and are generally safe with an increase of stocks that tend to do well when inflation picks up. To this end, the safest bets happen to be the three biggest ETFs in Canada: BMO Laddered Preferred Share Index (ZPR), Claymore S&P/TSX Canadian Preferred Share ETF (CPD), and Horizons Active Preferred Share ETF (HPR). 

If you’d rather go for preferred shares, you can add either a large-cap energy company or a mining company (or even both) to your portfolio. Both have strong potential for growth in a high-inflation setting. Energy companies, for instance, tend to benefit greatly from inflation-fueled increases in crude prices. In this regard, Suncor Energy, Inc. is an obvious choice as it is Canada’s largest oil company — one with a market capitalization of $42 billion. Embridge, Inc. is worth having a look at, as it has a market cap of $40 billion. Rounding out the big five are Imperial Oil, Ltd., Canadian Natural Resources, Ltd., and TransCanada Corporation, with market caps of $30 billion, $27 billion, and $26 billion, respectively. Mining, on the other hand, is an excellent option as metal prices usually rise when inflation is high. Mining companies you should research include Agrium, Inc., Barrick Gold, Teck Resources, and PotashCorp. 

Lastly you can opt to add to your portfolio companies that sell essential services and/or consumer staples. The Globe and Mail’s article on protecting your portfolio from inflation explains that these companies “have a knack for protecting investors from inflation,” mainly because people are still likely to buy them despite rising prices. That, of course, is not ideal for end-consumers. But for investors, it is a set-up that can be beneficial in an inflationary period. 

What Is SteadyOptions?

Full Trading Plan

Complete Portfolio Approach

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Try It Free

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles

Articles

  • Using ORATS in Anchor Testing

    The purpose of the below piece is to demonstrate how Lorntine Capital uses ORATS (Options Research and Technology Services) in our own backtesting. Note: ORATS does not pay me for writing this but has requested that if we like the software, we assist in promoting it.

    By cwelsh,

    • 0 comments
    • 20 views
  • Calculating the Probability of Option Payoff

    A calculation of “breakeven” as well as maximum profit or loss, sets up a single system for modeling and comparing one option to another. But it might also require traders to adopt an unrealistic assumption about outcomes based on best-case or worst-care scenario.

    By Michael C. Thomsett,

    • 0 comments
    • 128 views
  • Realistic Expectations: Using History as A Guide

    One of the biggest challenges I come across with the typical investor is maintaining realistic expectations and being able to properly understand the tradeoffs between risk and return. We all want high returns with low risk and there’s no limit to the efforts we’ll make to find it.

    By Jesse,

    • 0 comments
    • 175 views
  • CAPM As an Alternative Option Pricing Model

    Options traders endlessly debate the merits of the Black-Scholes pricing model. Some swear by it and others don’t even try to use it. Given the many profound flaws in the model, it is not an accurate tool for developing a sense of where price is likely to move in the future. But there are alternatives.

    By Michael C. Thomsett,

    • 0 comments
    • 361 views
  • Option Payoff Probability

    Options traders must, naturally, be concerned with the likelihood of payoff for a strategy. Ironically, one of the most often cited statistics about profit and loss is simply incorrect. That statistic is captured in the headline of a story posted online “Trading Options: Data Shows That 75% or More of Options Expire Worthless.”

    By Michael C. Thomsett,

    • 0 comments
    • 456 views
  • The Minimum Effective Dose (MED) For Cash Flow Planning

    Financial planners can usually give generic advice that will be appropriate for the majority of Americans, and that’s the goal of this article. If we can get the fundamentals of cash-flow planning right (where to put your money after you earn it and pay your taxes and bills), we’re 80% of the way towards maximizing our financial situation.

    By Jesse,

    • 0 comments
    • 486 views
  • Are You Breaking Even? Or Losing?

    Among the good reasons to trade options is the need to meet or surpass your breakeven yield. This is the yield you need just to preserve your purchasing power; and it higher than most people think. In fact, most people relying on moderate to conservative yields from stocks, mutual funds, real estate and savings accounts might be earning well below this breakeven level.

    By Michael C. Thomsett,

    • 0 comments
    • 584 views
  • Buy When You Have the Money, Sell When You Need the Money

    Money can be quite an emotional topic for many of us. Emotions can enhance our experiences and relationships in many ways, but they can act as mental roadblocks especially when trying to make wise financial decisions. One of the most common emotional roadblocks I come across when working with individuals is an unwillingness to invest idle cash to meet long-term goals.

    By Jesse,

    • 0 comments
    • 1,210 views
  • Strategy Selection vs. Risk Management

    "A billion here, a billion there, and pretty soon you're talking about real money." Everett McKinley Dirksen. Let’s begin with the bottom line: When I talk to anyone about the concept of choosing an option strategy (or two) to adopt for trading, I stress that the strategy should have certain characteristics.

    By Mark Wolfinger,

    • 0 comments
    • 548 views
  • Blending Anchor Strategy

    Anchor and Leveraged Anchor investors frequently ask why the strategy only trades SPY and SPY options rather than individual stocks, other indexes or commodities. We avoid individual stocks because of tracking and divergence issues.

    By cwelsh,

    • 0 comments
    • 670 views

  Report Article

We want to hear from you!


There are no comments to display.



Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account. It's easy and free!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now

Options Trading Blogs