Protecting Against Inflation
It’s been a long time since investors have had to worry about inflation. Now it’s been in the headlines, because prices have been rising faster than expected. Let’s talk about what that means and what you can do to protect your portfolio.
Before you start to worry about how inflation might affect your investments, let’s take a closer look at the facts behind the headlines.
What is inflation?
While it may sound like cause for panic, inflation simply refers to the gradual rise in prices over time, meaning the dollars you have today won’t stretch as far tomorrow.
This often happens because when there’s more demand than supply, prices will go up. When an external event, like a natural disaster or a pandemic, makes it hard for companies to produce enough to keep up with consumer demand, they can raise their prices, resulting in inflation.
This isn’t necessarily a bad thing. Stable, predictable inflation is actually considered a good sign for a growing economy.
Why is inflation rising?
Inflation is rising because prices are increasing faster than usual. It’s useful to know that most measures of inflation compare what’s happening now with what was happening a year ago. But, be aware that the economic impact of the pandemic is going to distort any year-over-year comparisons for a while.
What should you do about it?
That all depends on how long it sticks around. Many economists are expecting inflation to increase in the short term, but not to affect the economy as much as it has in the past.
The important thing is to avoid making knee-jerk reactions, if you make big moves now to hedge against inflation, you could lose big if the inflation turns out to be temporary.
If inflation is going to stick around for a while, it may be appropriate to make some prudent adjustments, like considering higher future inflation estimates in your long-term income planning. But this all depends on individual factors, like what’s in your portfolio, and when you’re planning to retire.
This is definitely not a one-size-fits-all scenario, and this is where it helps to get personalized advice from a financial professional.
We’re keeping a close eye on what’s happening with the economy, and together we can create a plan that makes sense for your needs.
If you have any questions, click here to schedule a phone call with one of our advisors.
Sources:
https://www.imf.org/external/pubs/ft/fandd/basics/30-inflation.htm
https://www.cnbc.com/2021/05/12/consumer-price-index-april-2021.html
This material is intended to provide general information and should not be construed as financial advice. It is not intended to serve as the basis for any financial or purchasing decisions or provide specific legal or tax advice. All consumers should consult a professional in these areas regarding the applicability of this information to their unique situations. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Investment advice is offered through Strategy Financial Services, LLC, a registered investment adviser. Insurance products are offered separately through Strategy Financial Insurance, LLC.