Inflation-Proof Your Financial Plan

JonPaul McBride, CFP^®, ECA

Financial Planner

This week’s reader question is about preparing for rising prices:

How can I make sure my financial plan and portfolio are inflation-ready? 

Can you stress-test your financial plan and make your portfolio inflation proof? It’s an excellent question and one that is front of mind for us.

Federal Reserve Chair Jerome Powell believes inflation will let up later in 2022 once pandemic-related labor shortages and supply chain problems get sorted and the economy settles into a post-COVID normal. We’ll see how that hypothesis plays out. Until then, rising prices at the gas station and grocery store, not to mention monthly housing and heating bills, are leading to some serious sticker shock. What can you do to mitigate the sting?

First, you can revisit your financial plan or work with us to create one if you haven’t already done so. Drilling down, we can stress-test your budget by identifying the line items that leave you the most exposed in 2022: Heating costs, upcoming medical expenses, rent or mortgage obligations and weekly groceries. We can help you project how inflation might affect your personal balance sheet and ability to meet near-term financial goals.

Second, we highly recommend that you not make dramatic changes to the asset allocation in your portfolio without talking to your adviser. Yes, some research has shown that so-called value stocks, which tend to trade at a lower price relative to their fundamentals, have done well during inflationary periods. But everyone’s risk profile is different. The rule of thumb for most long-term investors? A well-diversified portfolio is the best hedge in any market environment.

Finally, if you are thinking about borrowing to buy a house or car, go with a fixed-rate loan. Wages (and often the value of your portfolio) tend to rise with inflation. So, while your fixed payments will remain the same, you can expect to earn more money over time while spending a smaller percentage of your paycheck as each year goes by.

While inflation is largely out of your control, your financial game plan is not. Let us know if we can help you think through minimizing the negative impacts of rising prices on your bottom line.

Ask Us a Question!

We’re always interested in the topics or concerns you might like us to comment on. Ask us a question about investing, the markets or financial planning and one of Adviser Investments’ experts will answer it in a future edition of The Week in Review. CLICK HERE NOW TO POSE YOUR QUERY.

About Adviser Investments

Adviser is a full-service wealth management firm, offering investment management, financial and tax planning, managed individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trusts, institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFs, socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868.