How does inflation really impact me and what can I do about it?
Unless one has been asleep during the last 12 months, you can't avoid hearing about inflation. A basic understanding of inflation is this: Prices rise over time, causing your money to lose some purchasing power. If you could buy a car in 1980 for $5,000 and a comparable make and model for $35,000 in 2022, that is a perfect example in the change in purchasing power. Of course, your 2022 model probably has more bells and whistles (And higher repair costs), but for the most part, your $5,500 doesn't have the same purchasing power in 2022 that it had in 1980.1
In 2022, we're seeing inflation like nothing we've encountered in decades. It's risen above 8% at times, sending prices of most items through the roof. Inflation is monitored in part by measuring the changes in what consumers pay through the Consumer Price Index against the Producer Price Index, which measures the prices that producers receive for their products. Through this, the Federal Reserve finds that the rate that indicates ideal employment and stable prices is 2%. What moves the needle? There are a number of factors, including supply and demand, where demand for a good or service increases, but the supply filling that demand stays the same (or goes down), causing prices to increase.
What can you, as an investor, do to fight inflation? The general strategy in this case is to weather the storm, which can be helped in some ways by diversifying your investments. This often means a combination of equities (stocks) and bonds along with other products. Some investors take a more conservative stand and rely on the returns of bonds and cash alone in these periods. While it's true that certain bonds may be less volatile than other equity type investments, they can also offer lower long term returns and may not keep pace with inflation.1, One can also take advantage of stocking up on items that are on sale that you use every day.
Weathering high inflation periods can be difficult for investors, but sensible strategies and careful management may help you maneuver through the turmoil. We are here to help you figure it all out and keep you on track for a comfortable retirement.
Before making any investment decisions, it is best to speak with a Certified Financial Planner practitioner that knows your personal situation.
Feel free to reach out to me if you have any questions. I’m here to help.
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All the best.
Rick Fingerman, CFP®, CDFA™, CCPS®
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.