For stock market investors these are complicated times with mixed signals about growth and recession, double dip recession, inflation and deflation and so on. Enter another possibility, namely stagflation, a world of rising unemployment and rising prices.

This may or may not happen, but stock market investors should sense check their portfolio to protect their wealth from what could be several years of stagflation.

This article explores this issue and provides some simple guidance to investors looking to protect their wealth.

1.     What Does Stagflation Mean?

In short, during times of recession, stagflation occurs when a recession is combined with inflation which is an unusual and uncommon economic situation, and a complex one to deal with.

In normal circumstances during times of recession prices would be subdued as more people have less to spend, as do businesses, and therefore inflation would be constrained.

There are certain monetary policies and interventions that can wreak havoc with this process, and Governments have been doing a lot of it of late.

2.     Printing Money Is A Bad Idea

Rising demand for finite commodities (oil for example) combined with a process that increases money supply too quickly can cause stagflation. The recent round of quantitative easing as it is called was a careful balancing act and may turn out to cause its own economic symptoms in our poorly economy.

The tools normally available to a Government to control inflation cannot be applied in times of recession and economic vulnerability. Cutting interest rates and increasing Government spending are no longer options in our new world of austerity.

So what does this mean for investors and the stock market?

3.     Take A Global Perspective

Generally speaking it is likely that companies will report much slower growth in the next ten years than the last ten. Profit increases will be relatively slower and the pace of economic development is likely to be more modest, however that does not mean that there are not opportunities for investors, far from it.

Investors may consider looking for shares in companies with a good base in developing economies that offer better growth potential than those based in debt saddled nations. This is the reason that many investors have gone Far East. Check your portfolio for over-exposure to vulnerabilities of specific debt saddled economies and sectors within it.

Remember that many UK based businesses are well diversified international businesses, so just because the UK economy may be heading for a double dip recession or a period of stagflation, this does not mean that businesses based in the UK will suffer in parallel to this.

There may not be much in the way of good news around at the moment for investors, but history would suggest that is the best time for investors to get back into the market. So what are you waiting for?

Jamie E Smith is the author of Making Money From Stocks And Shares

This content was provided by one of our users, Jamie