Today, we look at investment themes during periods of deflation.

  • In deflation, debt is the enemy
  • Risk is to be avoided
  • Cash should be raised
  • Seek high-quality bonds. By default these are US Treasuries, with the longest dated Treasury bond being 30-year maturities. While it is a little burdensome for an individual to buy single bonds which have a face value of $10,000, they can easily do so via the Barclays 20+ Year Treasury Bond Fund (NYSE: TLT). The Fund rose from $88.59 last June to a high of $123.15 in December and now trades in the $93 range. Dividend yield is around 3%. One could also look at high-quality corporate bonds, which can be accessed via the iBoxx $Investment Grade Corporate Bond Fund (NYSE: LQD). Dividend yield is around 5%.
  • Laddered CDs offer a good investment structure
  • Gold typically acts well
  • Renting instead of buying a home should be considered

Rising unemployment and/or falling income with no way to pay the bills is the chief concern. The investment themes above should help you navigate a deflationary period.