Inflation affects not just your pocketbook, but the way you manage your financial planning. As inflation increases, it can squeeze your income and take a bigger chunk out of your savings. Financial planning during times of high inflation can feel like more of a challenge than an opportunity, but surprisingly there are some!
This article will provide you with four survival strategies for high inflationary periods from a financial advisor in San Ramon, which include:
- Rebalancing your portfolio
- Diversifying your assets
- Considering alternative investments
- Building an emergency fund as a safety net
Financial planning during high inflation
You may need a good grasp of inflation’s nature to understand what impacts it has on the economy and your investments. And during high inflation, it can help to have a solid financial plan to cover your bases of saving, investing, and abiding by your budget.
Since inflation refers to the general loss of money’s value within an economy (due to too much currency printed and circulated), it helps to plan ahead for it and keep planning through the trying times. In simple terms, this means more dollars are needed to buy a good or service. The U.S. Bureau of Labor Statistics uses the Consumer Price Index (CPI) to monitor this.
What happens during times of high inflation?
Raising interest rates is a slow-acting method used by the Fed to slow the U.S. economy in buying terms. Doing so helps to prevent even higher prices on goods and services. However, this can raise prices on:
- Car payments
- Business loans
Budgeting and personal finance, in general, can be challenging for those unprepared, so here are the four ways in which you can strategize for survival for and during high inflationary periods.
1. Rebalance your portfolio with an affordable financial advisor in the Bay Area.
Because higher interest rates tend to follow surging inflation, like a firehose putting out a fire, the investment environment may have altered. And because rate hikes can have a negative impact on investments, it can pay to get support in financial planning in San Ramon, CA.
Solid performers can begin to falter in the aftermath. For example, long positions in fixed-rate bonds can lose value because of decreasing returns. This occurs as the result of the pace of inflation decreasing the value of your interest payments.
In order to reassess where you stand today, discuss rebalancing your portfolio with a financial services firm in San Ramon and Newark to ensure that your retirement savings is on the up and up. If you are strapped on cash or think you don’t have enough money to afford a financial advisor, we have great news!
A dedicated professional can support you with investing strategies via subscription-based financial planning for $50 a month!
2. Diversify your assets with informed guidance.
Diversifying your portfolio is a great way to help protect yourself against unexpected downturns, and to ensure that you are able to take advantage of new opportunities.
The first step in diversifying your portfolio is to determine what assets might be appropriate for your situation. For example, if you’re young and want to invest for the long term, stocks may be a good choice. If you’re nearing retirement age and have a large amount of cash on hand, bonds may be appropriate.
In order to survive any financial storm or market volatility, choose a mix of stocks, bonds, and other investments so that no one type is too heavily weighted in your portfolio. That way if one type goes down in value, it potentially will help to keep gains from other types of investments.
Knowing your risk tolerance is essential to settling on the types of assets that might be right for you. Now could be the perfect time to find someone who can help you select and manage your assets with confidence.
There are many different financial advisors in San Ramon and the Bay Area who specialize in different areas of expertise—some focus on stocks only while others specialize in bonds. It’s important to find one who fully understands your needs and financial goals in order to provide informed guidance throughout the process.
At Humanity Wealth Advisors, we are committed to leveling the financial playing field by working with people of all income levels. We do not leave anyone unattended.
3. Discuss alternative investments with a wealth management financial advisor in San Ramon.
If it looks like inflation is going to continue to increase over time, consider investing more heavily into alternative investments that are less affected by inflation than stocks or bonds. To help shield your nest egg from high inflation, it may be time to think about varying the asset mix you have overall.
Alternative investments may be an appropriate way to diversify your portfolio. In fact, they may be helpful in smoothing out some of the markets fluctuations and other risks. Especially during volatile markets, diversification also means spreading your equity into a range of asset classes, which can include (but are not limited to):
- Mutual Funds
- Real Estate Investment Trusts
- Personal investments
Keep in mind that alternative investments are typically illiquid, which means you can’t easily sell them. That makes them risky and they may not always provide returns that match your expectations, but they can be worth the investment if you have a long-term outlook.
4. Start an emergency fund as a safety net for you and your family.
Having a safety net to serve as a cash reserve can help protect against times of higher high inflation. This can allow you to save and invest more when prices are low.
As a healthy financial practice, every household should technically have an emergency fund to fall back on. This is generally three to six months’ worth of household expenses to cover costs such as paying the mortgage, rent, utilities, bills, and food.
Remember that if and when you use this fund—replenish it as soon as possible.
To survive a high inflationary period you may need to budget wisely, reduce your expenses, and find better ways of increasing your income. The economy will not just become stable on its own, so you must be proactive in doing what is necessary to survive economically.
Use the four survival strategies provided by a financial advisor in San Ramon and Newark, CA, at Humanity Wealth Advisors. Contact our team in order to get professional support within each financial endeavor—you are not alone.