Inflation Is Headed Higher. Advisors Say Make These Moves Now.

- Advertisement -


As the country experienced the highest rate of inflation in 30 years, financial advisors are facing questions from clients. How bad will it be, and how long will it last? What does this mean for my finances and my investments?

- Advertisement -

And inflation could be even worse if new Covid variants upend global supply chains, scaring workers and cranking up consumer demand for home improvements and stay-at-home orders like exercise equipment. For this week’s Big Q, we asked a cross-section of consultants: What advice are you giving to clients about inflation?

Dean Herman

- Advertisement -

Photography by Tara Flannery

- Advertisement -

Dean Harman, Managing Director, Harman Wealth Management: There is inflation here for a year; It has become 2%, 3%, 4%, but people are starting to really feel it now. We are getting to the point where inflation is not temporary; The Fed may have to raise interest rates to bring it under control. From an investment point of view, we were concerned about five or six months back and designed portfolios accordingly. We bought some items, but the biggest adjustment was in fixed income. We are buying things that are less sensitive to inflation, such as convertible bonds. A lot of fixed income is just too much.

In an inflationary environment, the people who are going to win are the ones who have borrowed money. I was talking two days ago with clients who are buying a house, and my advice was to finance as little as you can, and get a 30 year mortgage. He has money for a big down payment, but I told him to keep it in his portfolio, keep growing it. They are probably five years away from retirement and thinking about paying off the house. But I told them that all the rules your parents follow are out the window.

Elizabeth Manon Burgess

Photography by Stephanie Zettle

Elizabeth Manon Burgess, Consultant, Wells Fargo: Inflation is clearly one of the biggest risks to a portfolio today. And people constantly ask about it. His first question is, is it temporary or permanent? And my answer is both: temporary elements of inflation can include food and energy and autos; Those things will automatically sort out by the first half of 2022. but we have some issues [longer term], Green energy is certainly more expensive. There is wage pressure, and global trade is getting tougher. Those are some of the things that don’t make the long-term inflation outlook rosy. We are used to 2% inflation; I think we need to get used to numbers closer to 5%.

So how does this play out for your portfolio? You always need to keep the risk tolerance and time frame in mind. You have to look at how many years you have until retirement, how many kids you have to school, and stuff like that. I think most people need to look at the allocation of real assets, and most people are going to do that through ETFs. So you have to decide whether you are going to take it from equities or bonds. And if you had a real asset allocation of 5%, you’re probably going up to 10% or if you had 10%, you’re probably going to 20%.

Michael Yoshikami

Courtesy of Destination Wealth Management

Michael Yoshikami, CEO, Destination Wealth Management: You need To prepare for high inflation, but not as high inflation as people are concerned. I think inflation will calm down next year and probably be around 3%. This is a great time to refinance your mortgage; Rates are still very low. And this may be an appropriate time to take out a home equity line to pay off higher-rate credit cards.

From an investment perspective, keep the periods below the bond market average, and make sure you have at least good or very good credit quality. It’s probably not necessary to have 100% triple-A credit quality, and flexibility can actually help you get a higher yield. Inflation between 2% and 4% tends to be an okay environment from an equity standpoint, and we think that’s probably where inflation is going to settle next year.

We’ve already moved money into companies that have pricing power, and companies that have strong intellectual property. We think it makes sense to get involved in the technology or pharmaceuticals sectors. We also love financial services with high dividend rates and high net-interest margins. When interest rates actually rise, those factors will be helpful from a profit standpoint.

Michael Polikar

Courtesy of NGP Financial Planning

Michael Polikar, Founder, NGP Financial Planning: I’m telling customers, “Don’t panic, it happens, we haven’t seen this in a long time.” I think the numbers for the year are going to be somewhere in the 4% to 5% range, which is something we haven’t seen since 1991. But I don’t see it like the ’70s and early ’80s, where we were 10 years of 4%-plus rates of inflation. inflation May stay high for a year or two, and then will probably start coming back down and drop out.

I am telling clients not to pay their mortgages. I told a client last week, “I know your goal was to pay off your mortgage before you retire. But given your interest rate, which is less than 2%, don’t rush to do that.” As far as investing is concerned, I don’t want to trade based on inflation. What I want now is pretty much what I’ve always wanted: companies that have strong balance sheets and pricing power.

Nancy Dawood

Courtesy of Ameriprise Financial

Nancy Dawood, Advisor, Ameriprise Financial Services: There have been unprecedented actions: lockdowns, trillions of dollars being printed and possible legislation including tax increases and more rights, leading to more dollars being printed. There is no real precedent for this scenario, from which uncertain what is to come.

Over the next 12 months, we expect the stock market, which we believe is currently undervalued relative to earnings, to go up. Inflation will continue as the pandemic recovers. It is unlikely that prices will go back to pre-Covid levels, but they may stop rising so rapidly, which should be good for consumers. We are investing in commodities and real estate to offset the falling value of the dollar. We also anticipate slowing economic growth over the past 2022, with interest rates rising. As always, my advice to clients is to pay attention to your time frame and risk tolerance, regardless of economic conditions, and be careful to prepare for the certainty of uncertainty.

,

- Advertisement -

Stay on top - Get the daily news in your inbox

DMCA / Correction Notice

Recent Articles

Related Stories

Stay on top - Get the daily news in your inbox