Wealth Management in the face of Inflation

today’s TOPIC Wealth Management in the face of Inflation BY » Peter Eisenhauer

Prices have definitely gone up. According to the Bureau of Labor statistics, the Consumer Price Index for All Urban Consumers increased 7.9 percent over the 12 months from February 2021 to March 2022. That’s the largest inflation increase since September 2008. In light of this, many are asking themselves how to maintain the purchasing power of their assets in the face of the current surge in inflation. We reached out to a number of area experts for some ideas and perspectives.

There does not seem to be a silver bullet, though creative thinking and some tactical changes can be useful. David Hedges, of Bookman Bright Retirement Planning, in Davidson, points out that, “As consumers, there’s not a lot that you can do if it’s necessities that you’re buying other than continue to shop for the best value with regard to the goods and services that you normally buy. If you’re buying discretionary and luxury items, you obviously have a choice as to whether you buy them or not and if you do buy, how much of it. Again, shopping for value is a good approach here.”

In terms of investments, Daniel Tobias, of Passport Wealth Management, in Cornelius, advises against churning the turbulent waters. “The important ‘strategy’ for today’s inflation,” Tobias said, “Is to stick to the strategy you had before it all began.” A well-constructed wealth management strategy, he says, already takes account of the possibility of inflation. “Wealth strategy is on a long time horizon,” he said. And as unwelcome as it is at any time, “there is no reason to expect that there won’t be inflation at some point.” That said, Tobias does note the possibility that tactical adjustments may be necessary. An example would be new home construction, where it might be better to postpone the investment.

Derek Bostian of Two Waters Wealth Management, in Huntersville, sees it this way: “Inflation’s one of those things that can be a “silent killer” of a retirement income plan. We’ve grown used to tame inflation over the past 20 years but the current environment has thrown that out the window. Now with inflation currently running at 7.9% in a historically low interest-rate environment, investors and retirees specifically are finding themselves in a tight spot.” Bostian notes that former safe haven investments like bonds, which have an inverse relationship to interest rates see downward pressure when interest rates rise. Because of this, he said, “Retirees are having to find different strategies to offset the risk in bonds with rising inflation and prices. One of those options is to look for shorter term investments like TIPS (Treasury Inflation Protected Securities) which rise in price with inflation but fall with deflation.” Bostian said that today’s retiree could also look at shorter duration bonds as another potential short-term solution.

“Taking on more risk for most people isn’t an option or a desire, so understanding your income plan and investment plan and how they coordinate together in today’s economic environment is crucial to securing a safe and comfortable retirement for many people,” said Bostian.

Hedges, of Bookman Bright, said that “if you’re in a rising interest rate environment, longer maturity bonds/ fixed income are generally not a good idea. With respect to owning equities, consider companies and owning portfolios that have the ability to raise prices without affecting the demand for their products or services.” He adds that “owning companies that have a lot of debt during a rising interest rate environment can be problematic for obvious reasons.”

“There are a number of things that you can do about inflation as an investor,” said Hedges. One of these involves taking a different approach to liquidity. “First on the list is getting some velocity/interest on the money that you’re not using,” Hedges said. “This isn’t your day to day operating cash. This is more like your safe money or “just in case” money. It’s that stash of cash that you use for unforeseen circumstances. Keeping some cash in your “just in case” pot is always a good idea but also consider keeping a portion in accounts and investment vehicles that you can borrow against short term but are relatively low risk and volatility but you can earn more interest than what you would earn on a savings, checking, money market account or short term CD. This would fit the need of being able to have liquidity at a moment’s notice but not sacrifice the opportunity to earn a respectable rate on the funds by just keeping them in cash and having daily liquidity. Ask yourself this question: Do I have a funding problem or a liquidity problem?”

Hedges adds that you should be sure to review all of the details such as the cost of capital. “If you’re paying more interest than what you’re earning, taking more risk than should or you’re not absolutely sure that you can pay it back quickly, it’s not a good idea,” Hedges said. “If you need the money, the liquidity, and it’s likely that it will not be able to be paid back in the short term, consider variations of short-term bonds, or multi-year guaranteed annuity contracts (if you’re close to age 59 ½).”

Tobias, of Passport Wealth Management, encourages investors to take the long-term view. “There are a variety of opinions regarding how long the current high levels of inflation will last,” Tobias said. “One thing is certain, the pandemic was something our globalized economy hadn’t dealt with previously and we don’t yet have a perfect prism with which to view the events of the past two years and precisely predict what’s in store as we continue to return to our ‘new’ normal. Some economic indicators are flashing bust while others are flashing boom. If you’re a believer in efficient markets then it might make sense to sit back and let those markets sort themselves out and adjust to new constraints alongside new opportunities.”

A FULL SERVICE WASTE MANAGEMENT COMPANY

• Front Load Garbage & Recycling Service • Compactors • Residential Waste & Recycling Service • 15 & 30 Yard Roll Off Dumpsters

Call To Start Service Today! 704-222-2639

Retirement Living at its Best

THE GARDENS OF STATESVILLE

Nestled off of Davie Avenue, minutes from Historic Downtown Statesville, and convenient to both I-77 & I-40.

CARDINAL VILLAGE

• Deluxe, Private and Companion Suite options • Residence Medical Director • Full Service Dining Room • Social, Educational, Cultural, Devotional & Recreational programs • Pet Friendly • Medication Management • Assistance with activities of daily living such as bathing, dressing, toileting and ambulation. • Transportation Services

Voted Readers’ Choice 2017

• 1 and 2 Bedroom w/single car garage • Full Kitchen w/ applicances including washer & dryer • Weekly housekeeping • Lunch & Dinner served daily • Electricity, Cable, internet and Life Line Alert sysytem included • Pet Friendly

2147 Davie Ave., Statesville Schedule a tour today by calling: 704.878.0123