By: Bill and Cindi Porter, AILERON INVESTMENT ADVISORS
Q: How should I invest to adjust for high inflation?
A: Stocks have been a dependable tool over the decades. The politicians who tell us that inflation is not a problem obviously have not been to a gas station, grocery store, restaurant, or tried to buy a house lately. The problem is real and will not just disappear as some politicians suggest. Why?
The Federal Reserve has “purchased” trillions of dollars of federal debt — even though it did not have any money. It simply “created” it on paper in order to let the government continue its fiscal irresponsibility. The net result is that the government continues spending trillions more than it takes in taxes and the Federal Reserve’s new “funny money” inflates the money supply. Hence, the price of everything goes up. Unless the debt gets paid off (it won’t) higher inflation will be a factor we must plan to deal with.
So what do we do as investors? Some assets have been able to successfully meet and beat the historical eroding effects of inflation. Over the past 90 years, there have been 176 twelve- month stretches when inflation ran above 6%. Stocks — especially value stocks — typically covered the inflation rate and also added real gains as well.
Any asset earning less than the inflation rate is incurring a loss. Think of a bank account. If inflation is 6% (it is higher) and a bank pays you 1%, your funds lost 5% in purchasing power. The same would be true with most bonds. Every asset has strengths and weaknesses. However, if it does not adequately address inflation it is no longer an “investment.”
It has been nearly 40 years since we have had to deal with such high levels of inflation. Your portfolio may need an adjustment. A conversation with your trusted advisor is a good place to start.
This is for education only. Before using this information in any way discuss it with a financial professional. There are many risks associated with stock trading. You may lose some or all of your financial investment. Securities offered through Dempsey Lord Smith, LLC Member FINRA/SIPC. Securities offered through Integrated Financial Planning Member FINRA/SIPC. Advisory services offered through Dempsey Lord Smith, LLC. All the information in this letter is published in good faith and for general information purposes only. We do not make any warranties about the completeness, reliability and accuracy of this information. Any action you take upon the information is strictly at your own risk.
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All the information in this letter is published in good faith and for general information purposes only. We do not make any warranties about the completeness, reliability and accuracy of this information. Any action you take upon the information is strictly at your own risk.