2026 is the period when investors really need to be alert because the market is shifting from concerns about high inflation to a new threat called deflation, which is a situation where prices for goods and services continuously decrease. And this could potentially blow up your portfolio if you're not prepared.

Deflation is an economic condition where the general price level decreases. It's not just a temporary price cut or in certain products, but a widespread decline across the entire economy, measured by a negative Consumer Price Index (CPI). Many think that falling prices are good, but in reality, it’s a warning sign that people lack purchasing power or are afraid to spend money. If left unchecked, it can lead to an economic recession.

There is often confusion between disinflation and deflation; they are very different. Disinflation means the rate of inflation is slowing down but still positive, such as from 5% to 2%. Deflation, on the other hand, is a negative inflation rate, like -1% or -2%, where prices are genuinely falling, and the purchasing power of money increases.

Looking back, the Great Depression (1929-1939) is the most frightening example. Prices dropped by 27% in the U.S., stock markets collapsed, banks failed, the money supply shrank by 30%, unemployment soared to 25%. Japan faced similar issues after the bubble burst in 1990. Over the past 30+ years, the economy stagnated, land and stock prices plummeted. The Japanese became accustomed to falling prices, which led to delayed spending—this was the start of a vicious cycle.

What are the causes? Partly, it’s due to decreased demand—people fear losing their jobs, incomes fall, so they save more and spend less. Businesses can’t sell their products, so they have to lower prices. Partly, it’s due to supply—robots and AI reduce costs, Chinese goods become cheaper, energy prices drop. All these factors pressure prices downward. Thailand is currently at risk too; GDP is expected to grow only 1.5-1.6%. An aging society means fewer consumer expenditures, household debt is high at 85% of GDP, and all these factors suppress the money circulation.

How severe can the impact be? Deflation is a situation where, when people believe prices will fall, they postpone purchases. Sales decline, businesses cut prices and production, layoffs happen, people lose income and can’t buy, leading to further sales drops—a difficult cycle to break. Debt becomes a problem too. If you owe 1 million baht but your income drops by 3%, your debt burden becomes much heavier. Stock markets are affected as well—profits shrink, stock prices fall, and real estate also declines.

So, what to invest in during deflation? Cash is king. Government bonds, especially long-term ones, tend to appreciate when central banks cut interest rates. The real return increases. Holding cash or money market funds is good—waiting for good assets to become cheaper and then buying. Defensive stocks like essential goods, utilities, healthcare—things people need to eat and use—electricity and water utilities are necessary. Gold is also a safe asset; its price is likely to remain attractive.

For investors seeking profit during a crisis rather than waiting, short selling is an option. In deflationary periods, stocks often decline, so you can profit from falling prices. You can also speculate on bonds—if you believe interest rates will fall and bond prices will rise, open a buy position. Gold can also be traded as people flock to safe assets.

But remember, investing involves risks. Especially when using complex instruments, you shouldn’t invest money you can’t afford to lose. 2026 is a real test—no longer a distant issue. Whether deflation is a threat or an opportunity depends on your preparation. Adjust your portfolio—hold bonds, accumulate gold, or use bearish strategies—these are ways to not only survive but also potentially profit while others panic.