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How Inflation Affects Your Investments

Investment Planning

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Have you noticed the recent increase in fuel prices? They’re up by more than $0.50 per gallon. Copper has risen by 42%, and food prices have soared by 24%. So, what does this inflation mean for you, other than the fact that everything now costs more?

Just a month ago, and since January, experts were predicting that the Federal Reserve would lower rates in June and possibly 3-4 more times this year. However, with the price of a barrel of crude oil now above $80, this is likely to boost the inflation rate by several percentage points, prompting the Federal Reserve to reconsider any rate reductions until inflation stabilizes.

Strategies for Bond and Equity Market Investors

For those invested in the bond markets, we anticipated one of the best years in a decade. That expectation is now likely on hold. For those in the equity markets, increased borrowing costs to run businesses could put downward pressure on earnings and subsequently on stock prices. In other words, we may have already seen the year’s high, with flat prices ahead, especially for major indexes. In our industry, it means that outstanding stock picking will likely outperform indexes for the foreseeable future.

Personal Spending Adjustments for High-Inflation

What should you do about this temporary phenomenon known as inflation? More of your money will now go towards covering bills for essentials like fuel and food, leaving less for discretionary spending such as travel and entertainment. We all need to be smarter with our spending and keenly aware of the potential impact of inflation.

Political Implications of Inflation on Market Stability

On a national political level, all incumbents need inflation to decrease and the stock markets to rise to bolster their chances of re-election. If inflation continues to rise and the stock markets decline, expect a significant shift in Washington as voters may seek substantial changes. I’m not predicting winners or losers; I’m simply highlighting potential voter sentiments this November to help you plan accordingly.

Risk Management: Preparing Your Portfolio for Inflation

Now is a good time to ensure your portfolio aligns with your risk tolerance. Every investor would be thrilled to see their portfolio increase by 20% between now and the election. But what if the opposite happens? That’s why we always emphasize the importance of understanding risk. Please set up a Zoom or in-person appointment to discuss this further.

Expert Insights

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