Roger Abel, AIF
3 Ways to Position Yourself For Inflation
Updated: Aug 12, 2022
Over the last 12 months, we have all been feeling the impact of inflation. Whether at the gas pump or the grocery store, we have seen the price of most everything in our lives increase. While the Federal Reserve is working to combat inflation through a series of interest rate increases you are probably getting used to reading the headlines each month that say something like “highest inflation in 40-years”. Month after month this year we have seen the inflation numbers creeping higher. In January 2022, we saw inflation around 7.5% then it went to around 8%. The latest inflation numbers, for the 12 months ending June 30, 2022, inflation is at 9.1%.
When it come to risk in your investments, our minds often think of market risk first. But inflationary risk can be just as dangerous. Inflation can erode the value of cash over time, and undermine investment returns through declining purchase power. That risk is especially important to consider in times of high inflation.
Develop an Inflation Budget
Reducing your expenses during times of high inflation can help keep you on course for your financial goals. Too often people find themselves saving and investing less to keep up with rising costs. While you don’t have to give up your lifestyle, there are small things you can do to free up cash in your budget without putting your financial future at risk.
Switch from brand name to generic products. Most generic products are manufactured by the same company that puts out the name-brand version. Plain packaging and less money spent on advertising allows the generic version to be sold at a lower price.
Cancel unused subscriptions. We are living in a time where there is a subscription to almost everything. From household products to entertainment. A BankRate survey found 51% of Americans say they have unwanted subscriptions, and many underestimate the amount they pay in subscriptions. Take a moment to go through your bank statements and look for any recurring payments that can be cancelled.
While these are small changes that may not see like they could make much of a difference, the savings will begin to add up over time.
One of the best ways to combat inflation over the long-term is to generate investment returns that outpace the inflation rate. It may seem impossible in today’s climate with inflation at over 9% and the stock market down, but if we look back at history, the long-term outlook is not as grimacing. From July 2012 to July 2022, the S&P 500 generated an average annualized return of nearly 11% (with dividends reinvested). During the same time period, inflation rose at an annualized rate of approximately 2.9%.
Get a Side Gig
As prices rise, generating extra income can help relieve some of the financial pressure. It could be anything from turning a second home into a rental property, or taking on a side job like driving for a ride share company or delivery service. There are plenty of opportunities available that allow flexible schedules to generate extra income.
If you need help developing a plan for inflation, click here to schedule a meeting with one of our financial advisors.
Inflation Data is from the U.S. Bureau of Labor Statistics as of July 18, 2022
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
All performance referenced is historical and is no guarantee of future results.
All indices are unmanaged and may not be invested into directly.
All investing involves risk including the possible loss of principal. No strategy assures success or protects against loss.