Inflation can be a fierce enemy against any budget. In a healthy year, it reduces your purchasing power by 2% to 3%. However, these days, inflation is at about 8.6%, a level not seen in the United States in 40 years.1 It’s no question that inflation is currently causing havoc, but you don’t have to sit idly by. There are things you can do right now to combat inflation and manage this unique period. Check out some of our tips you can begin doing today in this article!
Invest More Into Stocks
Even if the stock market seems unstable, overcoming inflation in the long run demands certain stock purchases. Over time, stocks generally provide a return greater than the rate of inflation. After all, when we talk about inflation, we are talking about the rising cost of goods and services. It makes logical sense that the companies supplying these goods would keep up with inflation over time. Inflation can help or hurt specific companies at various times, so it is wise to understand what you own in your portfolio. Stocks should not be excluded from your long-term portfolio if you want to maintain your standard of living.
Do Research About I-Bonds and Tips
Bonds do not usually perform favorably in periods of high inflation and rising interest rates. Most bonds pay a fixed interest rate for a period of time and if rates rise, your lower-yielding bond will likely be worth less in the marketplace. One way to protect yourself against runaway inflation is to consider bonds that offer inflation adjustments rather than a fixed rate. TIPS and I-bonds are issued by the government and might be beneficial if inflation rates stay elevated for a prolonged period. These products, when paired with a long-term plan that incorporates stocks, may benefit your portfolio.
Expand The Diversity of Your Portfolio
Additional diversity could benefit you in periods of high inflation. Many portfolios have been concentrated in areas that performed well during the past mild inflationary era. Oftentimes, this has put an overemphasis on growth over value stocks. In an inflationary environment, you want to own real assets that produce stable and growing income streams. Start-up companies that need to raise additional capital or companies that have profit potential in future years but not today may struggle more in this environment. Commodity-based investments have also traditionally been seen as inflation guards.
Re-Examine Your Spending
When the money is flowing freely, it is all too easy to fudge on your personal budget. During periods of inflation, it may be smart to reconsider how you spend your money. With rising prices, you may find it difficult to maintain some of your current spending habits. Trimming back on unnecessary expenses or rethinking some of your decisions can lead to significant savings now and in the long term. Overcoming inflation can sometimes be about how you plan for the future or how you manage to reduce spending in a period of emergency or recession. Consider what is important to you and make some judgments about where you can cut spending. For example, are there any subscriptions you’ve forgotten about or no longer need? You don’t always have to make major cuts to see huge effects.
Find Additional Income
To maintain pace with escalating prices, you may need to hunt for additional income. Earning more money can help you protect your financial future. One of the simplest methods to make extra money is to request a promotion or increase at work. Since the job market is still tight, you may be able to bargain more effectively for a wage increase than in recent years. Don't overlook side jobs or starting a business. If you have additional time, it may make sense to engage in a side hustle to fill in the gaps in your budget.
Pay Off Debt
Interest rates go up during periods of inflation. Variable interest rates on debt, such as credit cards and HELOCs, are included. Examine your interest rates to discover whether they are going to rise. If you're worried, concentrate on paying off your debt quicker. You may save more money in your pocket by preventing more of your money from flowing towards a certain debt. This is especially important during periods of inflation. The less debt you have, the less concerned you should be about what occurs during times of high inflation.
Schedule A Consultation with an Experienced Financial Advisor
Here at Fourth Avenue Financial, our first priority is your overall financial success. We hope this article has been informative to you and that some of its suggestions may help you as you weather inflation. However, if you feel like you need more guidance we’re always here for you. Our mission is to help you develop, implement, and monitor a strategy designed to address your individual situation to ensure all your investments are setting you up for a path of financial success. If you are ready to start planning for your financial future, we are here to help. Contact us today at (304) 746 7977 to schedule a meeting with one of our experienced financial advisors or schedule online: https://calendly.com/fourthavenuefinancial/introductory-zoom.
Securities are offered through J.W. Cole Financial, Inc. (JWC) Member FINRA / SIPC. Advisory Services are offered through J.W. Cole Advisors, Inc. (JWCA). Fourth Avenue Financial and JWC/ JWCA are unaffiliated entities.
1.https://www.usinflationcalculator.com/inflation/current-inflation-rates/#:~:text=The%20annual%20inflation%20rate%20for,13%20at%208%3A30%20a.m.