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True Wealth– Inflation – A Breeze or a Gust?
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or the past few months, there has been a lot of debate (and media coverage) on the issue of inflation and its impact on our economy going forward. By definition (at least according to Investopedia), inflation is the rate at which the value of a currency is falling and, consequently, the general level of prices for goods and services rising. The pundits professing good or bad consequences have a lively discussion sharing their point of view and defending it. From a financial planning perspective, the real answer to the debate should be, quite frankly, it depends. What I mean is that inflation affects financial assets differently, making it okay for some things and “not okay” for others. Add in the amount of inflation or inflation rate impact, and it creates a whirlwind of speculation. The reality is that generalization of inflation’s impact on your financial future may be best considered in a multi-faceted approach. Begin the process by asking yourself these three retirement planning questions: 1. Is my total income fixed in today’s dollars or does some or all have cost of living (inflation) consideration? 2. Are my remaining liabilities at a long term/ fixed rate, short term, or variable rate? 3. How might my investment portfolio react in a rising interest (inflationary) environment? In the liability bucket is your debt (borrowed money). If you have no credit card balances or other short term/
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variable rate loans and/or, if you have either a long-term home mortgage or no home mortgage, rising rates probably will have minimal impact on your situation. In the asset bucket are your investments. Rising interest rates tend to help savings accounts and short-term bond investments, yet can hurt other existing long-term bond investments. Equity (stock) performance is generally reactive to the economy and consumer spending. With changing age demographics, technology, and attitudes, this is the hardest to predict, hence allocations to different sectors of the economy can make a difference. As the winds of inflation seem to be picking up, be sure the sails of your retirement boat are set correctly, as no one really knows if they will blow gently or become a gust. Being prepared helps you sail through whatever the future holds. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Securities and Advisory Services offered through LPL Financial, a Registered Investment Advisor, Member FINRA, SIPC.
Jeffrey Karp, CLU®, ChFC®, CASL® founder of Karp Financial Strategies and is a registered representative of LPL Financial. More information and his blog, Permission GrantedSM can be found at www.karpfinancial.com.
