Inflation: 1 Investment to Stay Ahead in 2022

BMO Canadian High Dividend Covered Call ETF (TSX:ZWC) is a top ETF that Canadians should buy to improve their odds of a real return in 2022.

| More on:

Image source: Getty Images

It’s hard to build real wealth amid high inflation these days, and it doesn’t matter if you’re in Canada or the United States. In Canada, inflation is flirting with 7%. In the U.S., inflation could surpass 8% or even 9% over the coming months. It’s scary how fast inflation has run. Central banks should have taken action last year. Though they’ve delivered a quarter-point hike thus far with promises for more, it’s clearly not enough to curb the intense inflation rate.

Undoubtedly, inflation hurts everybody, but it hurts retirees and those living paycheque to paycheque most. Retired savers are feeling the pinch of inflation, and it’s not fair to them. Instead of hoping for inflation to go down, investors need to hedge their bets, because the Bank of Canada may not be able to keep up. They’re behind the curve, and they could stay behind the curve. That’s a major risk to your pocketbook. So, 2022 should be a year where you strive to make a real return. What’s a real return? It’s a positive return on an after-inflation basis. That means you’ll need to score a 7% return, assuming inflation stays at around 6.5-7%. If it goes higher, you’ll need to go into the equity markets.

Where to go to fight inflation and volatility

While stock markets have been very turbulent, I’d argue that the case for owning equities could not be greater. Better prices are available this May, and though they could become even more attractive in a continuation of this selloff, I’d argue that the risk of missing a near-term surge higher is quite high for savers who are most vulnerable to inflation.

Inflation is an unforgiving beast. It’ll ding you for not investing, and it may not go away this year.

Fortunately, there are plenty of opportunities in Canada. The TSX is rich with value. It has more deals than the S&P 500, in my opinion. So, if you seek real returns and a solid risk/reward tradeoff, consider a fund like BMO Canadian High Dividend Covered Call ETF (TSX:ZWC). It’s a boring investment but one that could give you a shot at a real return this year. You won’t get rich from it, but you can stay ahead of inflation, as central banks begin to make up for lost time.

High volatility and income: The ZWC shines

I’m not always a fan of specialty-income ETFs due to the higher MERs. Further, stocks tend to go up, so I find no need to own covered call ETFs over the long run. That said, if you hear the bear’s roar and if a recession looms, I’m all for the ZWC. In fact, those who lack hedges should look to the ZWC to shelter against inflation and volatility.

The ZWC is a high-dividend ETF with a covered call strategy that enriches the distribution at the cost of capital upside. In short, if markets drag into 2022 and 2023, ZWC could prove to be a winning bet that helps you score a real return.

The ZWC boasts a 6.3% yield. That’s pretty much in line with inflation. Between the ZWC and cash, the answer is clear in 2022. Real return seekers need to invest, and the ZWC is one of the best places to be in these days if you’re cautiously optimistic.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Investing

Bank sign on traditional europe building facade
Stocks for Beginners

1 Magnificent TSX Dividend Stock Down 22% to Buy and Hold Forever

This dividend stock may be down 22% from all-time highs, but is up 17% in the last year alone. And…

Read more »

Man making notes on graphs and charts
Dividend Stocks

How Much Cash Do You Need to Stop Working and Live Off Dividends?

Are you interested in retiring and living off dividends? Here’s how much cash you'll need!

Read more »

edit Woman calculating figures next to a laptop
Bank Stocks

Better Bank Buy: Scotiabank Stock or CIBC Stock?

These two bank stocks have been showing some improvements, but which is the better buy for investors who are looking…

Read more »

woman analyze data
Investing

The Best Stocks to Invest $10,000 in Right Now

Are you looking for stocks to invest $10,000 in right now? Here are my top picks!

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Secrets of RRSP Millionaires

Are you looking to make millions in retirement? You'd better get started, and these secrets will certainly help get you…

Read more »

Choice of fashion clothes of different colors on wooden hangers
Investing

What’s Going on With Aritzia Stock?

With Aritzia continuing to trade below its historical valuations, is it one of the best growth stocks on the TSX…

Read more »

Money growing in soil , Business success concept.
Dividend Stocks

TFSA Passive Income: 2 Dividend-Growth Stocks Yielding 7%

These top dividend-growth stocks now offer high yields.

Read more »

top TSX stocks to buy
Dividend Stocks

Buy 78 Shares in This Glorious Dividend Stock And Create $1,754 in Passive Income

This dividend stock surged in its first quarter, and more could be on the way as it works its way…

Read more »