3 helpful reminders as high inflation sticks around

May 27, 2022

Allworth Co-CEO Scott Hanson’s recent trip to the grocery store provides a few helpful reminders during this time of high inflation.

Stop me if this has happened to you.

I went to the grocery store the other day to pick up a few items. A couple of things for dinner and some snacks for my post-cycling workouts. But as often happens, by the time I was finished shopping, my cart contained a lot more than what was originally on my list.

Okay, it happens. Still, it should have been one of my less expensive trips.

But when the cashier rang me up, I would hazard to guess that I looked like one of those cartoons with my eyes popping out of my head in surprise.

That’s because when the cashier informed me of my debt, my immediate thought was, “For this?”

Does this sound like anyone you know?

I would imagine this scenario is playing out for more and more of you (and not just at the grocery store) as inflation stubbornly still sits near a 40-year high. In fact, what if I told you that, on average, U.S. households are spending an extra $341 each and every month to buy the same exact goods and services as they were buying last year.[i]

Probably not that surprising, right?

And by my quick, back-of-the-napkin math, not only is that more than $4,000 over the course of a year, which can put a dent into any budget, but, depending on how and where you spend your money, this number could be even higher.

So, this week, to try and help ease some of the pain and stress that the current financial climate is causing for so many of us, I wanted to share three reminders since this high inflation is likely going to stick around for a while longer.

1. Review your budget

I know … I know. Budgeting isn’t the most enthralling topic. But I know a lot of people who have no idea where their money is going day in and day out.

That’s because it’s critical to keep abreast of these details even during ‘normal’ inflationary periods, which means it’s even more critical during times like this.

Take a look at your monthly bills. Reassess. Is there anywhere you can cut back? Remember, as my Allworth co-founder and Co-CEO Pat McClain likes to say, “Money not going out is the same as money coming in.”

Hopefully, for those of you who are exceptional savers and already live well below your means, you’re not feeling these kinds of budgetary pressures, just yet. But there’s no downside to getting out ahead of it. Because depending on how long this persists, it’s likely that, at some point down the road, you will have to make some, albeit perhaps just a few, lifestyle adjustments.

Might as well start thinking ahead right now.

2. Tackle credit card debt

With some debt, as with a fixed mortgage, inflation is actually not as painful, because your payment stays the same but you’re paying your lender back with money that’s worth less.

But that’s not the case with credit card debt.

The fact is, that kind of debt is one of the most expensive and destructive. That’s because credit cards are typically tied to variable interest rates, so they are only going to get more expensive as the Federal Reserve continues to tame inflation by raising short-term borrowing rates.

Translation? Your money is worth less, but you’ll keep owing more.

Not a good combination.

So, if you have any amount of credit card debt, I urge you to put a plan in place to get it paid off as soon as possible. And while I know it might seem counter intuitive to siphon money from a budget that’s already stretched and put it toward paying off a credit card (or two), the financial benefits of doing so will more than likely be worth it in the long run.

3. Don’t panic with your investments

Generally speaking, I like to remind people that the best way to help your investments weather periods of high inflation is to remain invested in the stock market.

Case in point, since its inception, even though there’s volatility, the average yearly return on the S&P 500 is about 10%.

2021’s record inflation was 7%.

Remember, companies have the power to increase their earnings by raising prices. And earnings are one of the most important drivers of long-term stock returns.

And yes, I know that the markets have hit a bit of a rough patch. But in my over 30 years as a financial advisor, I’ve seen, experienced, and consulted with many clients through countless ups and downs in the market, and the one thing I can attest to is that it’s bounced back every single time.

Bottom line, if you have a sound financial plan that was built to incorporate your specific goals, needs, and tolerance for risk, you shouldn’t stray from that plan.

And as difficult as it may be, fight the urge to stockpile financial products or investments that are touted as “safe havens,” such as gold or other commodities. All too often, these are sold using fear-based marketing tactics, which, given the kind of investing and financial environment we’re in, may sound persuasive. But I can say, almost with 100% certainty, that making emotional decisions right now will probably not serve you well in the long term. And, while they have their place in some portfolios, I would also recommend that you not depend too heavily on fixed income investments, such as long-term bonds or annuities, during periods of high inflation.

Lastly, if you work with an advisor or an accountant? Ask about potentially taking advantage of tax-loss harvesting strategies, especially since the market has been declining (our team at Allworth has already been doing this for our eligible clients). This type of move should help lower your tax liability, which, ultimately, can help combat some of the loss of purchasing power everyone is experiencing.

Inflation is something that we typically ignore until it smacks us in the face. And right now? It’s rudely making its presence known, touching every one of us, no matter where you may live, how much you make, how much you save, or how much you spend.

It won’t last forever.

But until it subsides, remember to stay proactive with your budget, stick to your financial plan, and avoid making hasty, emotional decisions.

[i] https://www.cnbc.com/2022/05/12/whats-more-expensive-as-inflation-costs-families-extra-341-a-month-.html

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