Rising Inflation Concerns
When we speak out to our clients about their concerns, one area of repetition is worries over inflation. Lately, inflation news is hard to miss, so we totally get it!
We’ve heard ‘should I be worried?’, ‘how would this impact my investments?’ and ‘surely the market will pull back, shall we take some action?’.
As a result, we wanted to take a deeper dive to help you understand our view on rising inflation, our investment policy on this matter and what our advice is today on rising inflation.
Firstly, thanks to those clients who raised these concerns., They help us understand what may keep you up and night enable us to provide some historical context, a deeper understanding on the matter and how you’re positioned for this.
Inflation On The Up
Inflation, the rising costs of goods and services, has reached 4.2% in the USA over the last 12 months ending April 2021. Supply is getting squeezed by demand i.e economies are opening, pent up demand from consumers and businesses is resulting in spending and factories cannot keep up.
This is mostly caused by prolonged periods of lockdown in 2020 and demand being an unknown quantity for 12-18 months as countries around the world told everyone to stay at home.
We also have the new administration with President Biden’s proposed fiscal plans totalling over $6 trillion in spending. This has some economists worried it could be too much of a good thing. Larry Summers, former US Treasury official, has concerns of this overheating the economy.
However, you don’t have to look far to hear the opposite argument from the Fed and the Bank of England both believing this spike will likely be transitory. Meaning, once we’re through this pandemic, they believe supply and demand will even itself out and we’ll revert back to more recent yearly inflation of 1%-2%.
Our Investment Philosophy
Above all else we’re a planning focused company aligning your investments to your plan. This means we want to understand all about your future aspirations, what retirement means for you; travel, consulting, collecting war memorabilia, spending time with family in the UK and US. Your investments are then the tool to enable you to live out your desired life.
We hope by now you’re aware of how we manage your money. If not here are the highlights: achieve massive global diversification across equities and across bonds, hold mostly passive funds to reduce annual costs, rebalance consistently every 12 months and design investment strategies to hold up in good and bad times.
We provide optimism during times of pessimism. We manage your money in the same way we manage our own and we don’t sell when other investors are panicking.
And we’re firm believers in:
All lastingly successful investing is goal-focused and planning-driven. All failed investing is market-focused and current events-driven. Successful investors act continuously on their lifetime plan; failed investors react continually (that is: randomly, episodically) to economic and market developments.
What Should I Do About Rising Inflation?
Putting the concern of rising inflation into context of advice we would give today:
- We can see demand outstripping supply and Biden pumping money into the economy.
- We don’t know for sure on how long these inflationary pressures will continue or whether the Fed will react. Also we can’t be sure how the equity markets will react – this a double/triple dose of uncertainty.
- Given these unknowns, should we be reacting and making big changes in my investments?
- What do we know?
- We know how much you need to accumulate before you retire.
- We know the plan of how we’re going to get there, based on historical market returns, including historical periods of higher inflation.
- We know your portfolio is built around your plan.
- And if the market does wobble, because of inflation or an event we haven’t even thought of, we know that creates a buying opportunity.
- Unless your goals have changed, we strongly recommend not to change the plan. And if we are not changing the long-term plan then we shouldn’t be tweaking your long-term portfolio.
Our investment committee will continue to monitor these inflationary pressures, the impact on the equity markets and the Fed’s response. We’ll continue to review any impact on our investment strategies that you’re invested in and the underlying funds we recommend. But above all else, we believe this too shall pass.
As always, we’re here if you want to discuss this further.
Plan First Wealth is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.