investing

how to beat inflation The Old Man and the Sea (Inflation Edition)

The Fed has signaled that they may keep interest rates low and continue bond purchases until 2014 or 2015. Nevertheless, investors are edgy.

If Bernanke stops the Fed’s bond purchasing program, bond values may decrease causing rates to rise. The Fed also can’t keep interest rates low forever.

Higher interest rates will impact your savings and investments. Will you be ready when rates go back up? Are you aware of how rising interest rates may affect you? Are you ready to keep inflation from devouring your purchasing power, and – most importantly – do you know how?

You’d be surprised. I talk about how rising interest rates may impact your wallet, plus strategies to protect yourself, in this week’s podcast.


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coming11 The Old Man and the Sea (Inflation Edition)

Eddie Murphy’s 1988 movie “Coming to America” famously stereotyped two locations: Long Island City (in Queens, NY) and Africa.

Long Island City has come a long way from the rat trap where Eddie Murphy (Akeem) and Arsenio Hall (Semmi) lived.

But is Africa still the exotic expanse of endless plains filled with wild animals and despotic rulers?  Or has it also come a long way?  In fact, has it even begun to emerge as a serious investment opportunity for individual investors (instead of primarily governments and institutions like private equity)?

Classic risks with investing in Africa have included:

  • Political Instability and Ongoing Armed Conflicts
  • Economic Instability (lately due to Eurozone issues)
  • Trade/Supply Instability (lately impacted by Arab Spring)
  • High Dependence on Commodities
  • Undeveloped Infrastructure

But what’s happening now?  Unfortunately, getting specific and accurate data on each of these is still a challenge (and yet another risk for investors).

However, the World Bank maintains social and economic indicators for Sub-Saharan Africa.  These imply:

  • Increased organization among government finances
  • GDP stability (in particular, after the 2008 recession)
  • Struggles with exports (likely due to regional instability)
  • Increasing economic diversity (yet still highly dependent on commodities)
  • Improved infrastructure – largely due to investment by China

Trends over the last decade have been favorable.  Despite this progress, Africa still has a way to go to become a stable place for Main Street investors.

The tremendous health crisis alone causes concerns about stability.  For example, one of the health statistics that the World Bank tracks – the prevalence of HIV in people ages 15-49 – is striking when compared to the rest of the world:

DJAfrica2 The Old Man and the Sea (Inflation Edition)

Nevertheless, Africa has been coming up more frequently as an opportunity for individual investors looking for return. Compare the Dow Jones African Titans 20 TR (DJAFKT – +64.81% since established in 2006) to the Dow Jones Industrials (DJI – +18.62% over the same period) and the Dow Jones Global Titans (DJTT – -5.07% over the same period):

DJAfrica The Old Man and the Sea (Inflation Edition)
As a result, keep an eye on Africa.  If you profit, perhaps you can hire Randy Watson and his band at your celebration.

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