New investors are wondering where people invest their money during a volatile market. A Texas financial advisor is here to help you identify some intelligent moves to hedge against inflation. Because rising inflation lowers your purchasing power, there are many ways to protect your assets.
Investment management in San Antonio, TX, with PAX, can help you power through inflationary environments.
A recession is on the horizon, so having professional advisory services to protect your nest egg could be the best move you make this year. Especially for individuals and retirees living on a fixed income—you need a thoughtful investment strategy that ensures you don’t run out of money as you combat rising prices.
What is inflation?
Think of what you can buy for a dollar compared to what you could buy for a dollar 22 years ago. At the turn of the century (Jan 2000), a gallon of gas was $1.32, compared to Jan 2022, which rang in at $4.47. This is due to inflation.
Of course, we are experiencing very high inflation currently, at 8.5%, due to various factors. Keep in mind that the Fed tries to maintain a “healthy inflation rate” of around 2%, and yes, they are raising interest rates to help bring the rate back down.
Even though inflation is a natural occurrence in the economy, it is seen positively when it boosts consumer demand and consumption, which drives economic growth; yet some think its purpose is to keep deflation in check. However you perceive it, inflation calculates the average price level of a sector of goods and services in an economy, showing the increase in price over a certain period. And when citizens can buy less with their currency, this is where we the people, lose our purchasing power.
Changes in current events impact the level of inflation. This includes geopolitical turmoil, times of crisis, war, pandemics, policy, and more. And increasing prices and raw materials like oil add to inflation.
How does inflation impact your finances?
When inflation is rising, assets with fixed, long-term cash flows don’t fare well because the purchasing power of that future cash decreases over time. Assets and commodities with adjustable cash flows, on the other hand, do. However your assets are currently diversified, let’s look at what fares well during inflation and what doesn’t.
Stock market investments
Of course, there is no sure bet on which stocks will perform better than others. However, history shows that U.S. stocks have often risen in price when inflation rises. Investors debate if larger companies perform better with inflation versus mid-sized and smaller companies, while foreign stocks are thought to fall in price when inflation rises.
Fixed income investments
Have you heard that bond prices fall when inflation rises? Well, it’s true; investors usually buy fixed-income securities like treasuries, bonds, and CDs since they provide stable income streams through interest payments. But the interest rate stays the same on most fixed income securities until full growth.
This means that the purchasing power of the interest payments decline with rising inflation. So be careful if you are a DIY investor. Instead, talk with a financial advisor about an intelligent strategy for your assets based on your risk tolerance and time horizon.
Your savings can dry up with inflation, even if you have secured funds in a savings account with an average interest rate. If you’re working, your earnings should keep up with inflation, but if you’re living off savings, inflation reduces your purchasing power. A financial planner can help you factor inflation into your financial plan.
Commodities like gold and oil have historically been reliable assets for rising inflation, although they are more volatile. Real estate investments offer another prosperous avenue to explore as an inflation hedge.
How can a financial advisor help you protect your assets against inflation?
Who knows inflation better than a CFP®? That answer will depend on the amount of knowledge someone has in experiencing, studying, investing, and managing great deals of wealth within such conditions. Our team of financial advisors is passionate about supporting your life to help you not just survive but thrive.
A CERTIFIED FINANCIAL PLANNER™ can help you apply healthy financial discipline based on your customized plan. They can also ensure that you are well-planned for inflation by investing in asset classes that outperform the market during inflationary conditions. This involves having a diverse asset mix across multiple asset classes.
What are some tips to help you combat inflation?
By maintaining a professional connection to a reliable resource such as a Texas financial advisor, they will know when to make adjustments on your behalf. Your dedicated financial ally can potentially help your portfolio flourish when inflation hits. To combat inflation, you may be advised to:
- Be more modest in your spending (compare wants versus needs and cut back where you can)
- Postpone big expenses (put off big-ticket items like buying a new vehicle or fixing up your home, if you can)
- Become a mindful food shopper (buy more veggies and canned tuna versus chicken and eggs)
- Eat out less (dining out costs much more than it did before the pandemic)
- Focus on growing your investments versus savings accounts
- Diversify your investments (have a mix of equities, commodities, and Treasury inflation-protected securities (TIPS) to offer some protection)
What should you look for when choosing a financial advisor to work with?
The benefits of working with a financial advisor to help protect your assets against inflation are endless. Here are some tips to help in your search:
- Look for a fiduciary CFP® who offers the services you need and has your best interests at heart
- Understand their fee structure and what you are paying for (get this in writing)
- Ask about their background and experience
- Verify with the FINRA Broker Check or SEC Advisor Check
- Make sure you approve of their investment strategies
- Be clear about your goals and expectations, and see how they respond
- Find out how they prefer to communicate
- Ask how and when you will review your portfolio performance
After exploring your financial situation in-depth with an advisory firm that resonates with you, look forward to a lasting relationship.
At PAX Financial Group, we provide 100+ years of combined experience and are laser-focused on your needs. We look forward to constructing a custom comprehensive financial plan for you. Schedule a no-obligation conversation today to get on the right track.
This material is provided by PAX Financial Group, LLC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The information herein has been derived from sources believed to be accurate. Please note: Investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs and expenses, and cannot be invested into directly. All economic and performance data is historical and not indicative of future results.