New TFSA investors should look to put money to work now that the S&P 500 is at risk of revisiting its 2022 lows. Indeed, the S&P 500 and Nasdaq 100 have already plunged into a bear market (20% fall from peak to trough) earlier in the year. There’s a real chance that markets could continue their free fall on the back of the latest inflation numbers. Just when it showed signs of cooling off in April, May saw inflation surge to 8.6%, marking another 40-year high.
It’s a tough time to be an investor, as the U.S. Federal Reserve looks to take the punch bowl away, with no signs that it will take a dovish pivot in response to damage already done to markets. Undoubtedly, the so-called Fed put seems to be off the table, not because the Fed likes to induce economic pain, but because there’s only one way to stomp out inflation before it runs out of control.
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Preparing your TFSA for a stagflationary world
Passive-income stocks seem to be great buys at this juncture. Many lower-beta dividend stocks can help investors better deal with extreme market volatility while getting paid a dividend or distribution that can help offset part of inflation’s impact.
At the end of the day, inflation should be seen as a genie that takes a heck of a lot of effort (and pain) to put back in the bottle. Though it’s hard to tell how much pain will be inflicted to stock markets this year before inflation rolls over. However, I think new TFSA investors should not try to time markets or look for specific places to hide.
There aren’t many places to hide in this hostile environment where stagflation could strike. And the places that seem like great hiding spots today (think the energy sector) may not be what they seem in a few months down the road.
When there aren’t many places to hide from a volatility storm, it’s wise to stay diversified. What works today may not work tomorrow, and vice versa. Though diversification will not shield investors from pain, it can help smoothen the bumps in the road and help investors lose less than the market averages in a down year.
Currently, Enbridge (TSX:ENB)(NYSE:ENB) is one Canadian stock that could continue to rise as inflation surges while economic growth runs out of steam. Though it’s hard to tell how much longer energy stocks will lead, given oil prices tend to move on the outcome of unpredictable exogenous events, I think many TFSA investors underweight in energy stocks have a lot to gain by buying at these levels.
Enbridge
Enbridge is a pipeline firm that’s less sensitive to oil price fluctuations. The stock is up 18% over the past year and is likely to hold its own, even as the rest of the TSX Index crumbles in the face of higher rates. As the Ukraine-Russia crisis escalates, demand for domestic energy could remain robust. With a juicy 5.9% dividend yield, Enbridge stock can serve as a steady ship to guide through these incredibly choppy waters.
At 20.2 times trailing earnings, shares of ENB don’t seem cheap. However, given it’s one of few Steady Eddie dividend stocks to hide in amid market turmoil, I’d argue the price of admission is more than worthwhile, especially for Canadian investors with zero fossil fuels exposure.
