Stocks vs. Bonds: Which is Better To Beat Inflation?

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During high inflationary periods such as the one we are currently in now, many investors are in search of assets that would help them earn returns that are equal to if not better than the inflation rate. While bonds provide fixed income on a regular basis and the principal invested is safe for the most part, bonds are not the best asset class to beat inflation. Stocks on the other hand are ideal to own when inflation is high since dividends paid out by them can increase and also stocks can generate capital appreciation. Together the returns from these two sources can match or even beat inflation. Though the fixed income from bonds is consistent and regular, they are more exposed to inflation than stocks.

The following chart shows that stocks are better to match or beat inflation using the example of Canadian equities:

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Source: A case for dividend investing, RBC Global Asset Management

Related ETFs:

iShares MSCI Canada Index Fund (EWC)

Disclosure: No positions


The Top 5 Global Waste Management Companies

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One of the industries that remains stable and strong when economies are booming or contracting is the waste management industry. Similar to utilities, these firms provide a valuable service and necessary service. The US is the world’s largest producer of waste. This is not surprising since consumption drives most of the economy.

According to a research report, in 2019 the US generated 12 percent of the global municipal solid waste though it accounts for just 4 percent of the global population. On a per capita basis, Canada was ranked number one followed by Bulgaria and the USA.

From an investment point of view, a few of the top companies trade on the US equity market. The Top 5 Global Waste Management Companies are listed in the graphic below:

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Source: Market Research Reports

The stock tickers of the above firms are listed below:

  • Waste Management, Inc. (WM)
  • Republic Services, Inc (RSG)
  • Waste Connections (WCN)
  • Veolia Environnement SA (VEOEY)
  • GFL Environmental Inc (GFL)

The 5-year return of the three US companies are shown in the chart below:

Note: Data shown is as of July 29, 2022

Source: Yahoo Finance

Disclosure: No positions

Annual Total Returns for Key Market Indices from 2012 to 2021: For Canadian Investors

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One of the key strategies for success with investing in equities is diversification. Following this strategy not only allows an investor reduce risk but also generate higher returns. Diversification can take many forms The easiest way to achieve diversification is to spread one’s investment across many times of asset classes.

The following chart shows the benefits of diversification from a Canadian perspective:

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Source: Morningstar Direct, Russell Investments. Annualized return in CAD. Canadian equity=S&P/TSX Composite Index, US Equity=S&P 500 Index, International Equity=MSCI EAFE Index, Emerging Markets=MSCI Emerging Markets Index, Canada Bonds=S&P Canada Aggregate Bond Index, Emerging Markets Debt= JP Morgan Emerging Market Bond Index, Global High Yield=Bloomberg Global High Yield Index, Global Infrastructure=S&P Global Infrastructure Index, Global Real Estate Investment Trusts (REITs)=FTSE EPRA NAREIT Developed REITS Index, Commodities= S&P Goldman Sachs Commodities Index, Indexes are unmanaged and cannot be invested in directly. Past performance is not indicative of future results. Index performance does not include fees and expenses an investor would normally incur when investing in a mutual fund. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. 

Note: Returns shown above are in C$

Source: Going Global: Finding Opportunities in a World of Uncertainty, Russell Investments

A few observations:

Since 2021, Canadian stocks were the top among the asset classes shown only once in 2016.

Canadian equities have underperformed their American peers by a wide margin of 10% in the past 10 years ending in 2021.

Commodities have yielded average to mostly negative annual total returns in most the past decade.

Related ETFs:

iShares MSCI Canada Index Fund (EWC)

SPDR S&P 500 ETF Trust (SPY)

Disclosure: No positions