A few months ago, investors were wondering if the inflation we were experiencing was going to be short-lived or if it was going to stick around for a while.
Now we have the answer to that question.
While inflation has had top billing in the news this year, it’s important to really understand what it means and, some cases, recognize the opportunities that might be available.
First, let’s start with your concerns.
For investors in or nearing retirement, worrying about inflation could be keeping you up at night: Do I have enough to live the lifestyle I’ve become accustomed to and will my money last?
The good news is that inflation is not a new thing – we’ve experienced this before. When you work with a financial advisor, inflation is taken into consideration when putting together your long-term plan and retirement income. If this is something you continue to be concerned about, contact your financial planner – answering your questions is what we’re here for.
Another common inquiry has to do with gold and precious metals when the value of the dollar comes into question. However, it’s important to remember that while these types of investments have been traditionally considered a hedge against inflation, they can also experience large swings in value based on unexpected events and data. I usually recommend a small percentage in multiple asset classes versus large shifts with significant portions of a portfolio.
And what about your money in the bank? Now that people are getting next to nothing from bank account interest while the cost of everything is skyrocketing, it’s important to be more intentional.
Here’s what we recommend:
- Establish a purpose for each “bucket” of money.
- Avoid the short-term emotions of investing.
- Look at the logic of long-term results.
Keep in mind that short-term funds that need to be accessible in the case of an emergency should not be put at risk. It is commonly recommended that you have 3-6 months of living expenses somewhere easily accessible.
Now, onto the good news.
For some investors, inflation can actually be beneficial. Investment accounts with at least a 3-year time horizon will usually be presented with good buying opportunities for oversold markets or stocks before everyone realizes they went too far in their reaction to negative events.
What should you take away from that? Like life in general, many times it pays not to blindly follow the collective emotions of the markets.
Where do you go from here?
To quote Seth Klarman, “Unprecedented events occur with some regularity, so be prepared.” Whether it takes a couple of weeks, a couple of months, or a couple of years, making adjustments and staying invested - versus wholesale exiting and entering investments - is the proven strategy for success. Some of these adjustments can include adding investments that have downside guarantees for a short period of time.
If you’re feeling uncertain about your financial future now is the time to speak with a professional. Financial planning isn’t only about your investments; it’s also about answering your questions. CONTACT US to find out more about how we can help.