Just When You Thought it was Safe to Breathe: Inflation and Your Portfolio

Just When You Thought it was Safe to Breathe: Inflation and Your Portfolio


Remember when the pandemic was going to disrupt life for a few months – okay, maybe a year – and then everything was going to get back to normal? Just when it looked like we had a handle on the virus, the global supply chain falls apart. Then came the crazy swings in the stock market. Now it’s inflation. Sure, wages have been going up for a lot of people, but by many metrics, inflation is wiping out those income gains. It’s enough to make a person want to stop looking at the news.

You’d have to be more than 40 years old to remember inflation like what we’re experiencing today. Breaking news alerts announce new record prices for a gallon of gas. Grocery store receipts contain eye-popping numbers. Everyone is ready to take a much-needed vacation, but it’s hard to relax when all you can think about is the cost of travel. With prices rising as fast as a Covid surge, it’s hard to know whether it’s time to make changes in your financial portfolio – or just hang in there and hope.

Just as no one could predict we’d start 2022 with war in Eastern Europe, there’s no way to accurately anticipate the trajectory of inflation numbers. That said, economists and market analysts spend their lives tracking trends, assessing underlying market conditions, and looking at comparable times in history. Here are some data points that help put today’s inflation in perspective:

  • The overall Consumer Price Index (CPI) is up 8% year-over-year. That’s the highest it’s been since the 1980s. A lot of the rise in prices is being driven by the cost of fuel and food. But there are still impacts related to supply and demand imbalances, which will ease as knots in the supply chain get worked out.
  • Economists and experts expect inflation to increase a bit more before it goes down, but believe that the current trend is transitory, meaning they expect that inflation will slow over the next 12-18 months.
  • The expectation is that long-term stock returns won’t be significantly impacted by inflation since companies tend to pass costs onto consumers over time. But if inflation persists, companies may end up having to take a hit to profits, which could lead to continued weakness in stock prices over the short term.
  • While rising interest rates are the current talk of the town, if the economy does head into a recession, the Federal Reserve may respond by cutting interest rates. This would likely lead to increased bond prices and a reversal of the recent rise in savings rates.

How inflation impacts your financial planning

It’s time again to go back to the basics: A balanced portfolio with a long-term planning horizon continues to be the best formula for protecting against inflation and growing your assets. What you do in response to inflation depends very much on where you are in your life. Strategies will be different for someone who is at or near retirement versus an early-career professional with many years of income ahead of them. A few things to consider include:

  • Your household cash flow. When income doesn’t keep up with inflation, that results in lower purchasing power. In practical terms, it can mean that your exact same lifestyle could be cutting into savings or your ability to accumulate money for retirement. Consider where you may make some short-term adjustments if needed, to stay within your means.
  • Rebalancing your portfolio. Unless you are in retirement and drawing on your portfolio, it’s not a good idea to park long-term investment dollars in low-interest savings accounts, because when inflation is higher than the yield on savings, you’re actually losing money. However, if you haven’t rebalanced your portfolio in a while, consider setting a meeting with your financial planner to look at your options.
  • Social Security timing. Your monthly Social Security benefits will be higher each year you put off receiving them. Payments are also automatically adjusted for inflation. This means waiting to collect Social Security could be beneficial if it works in your overall financial plan.

The economy runs in cycles, and market watchers have been anticipating a cooling off of the stock market for a while. But the past two years have seen so many unique events. It’s difficult to predict what the pandemic, supply chain disruption, war, food and energy shortages, and inflation will do to anyone’s portfolio. A balanced, long-term approach continues to be the best bet for weathering any storm.

If you’re feeling uncertain about whether your portfolio is structured to serve your needs

and in the future, contact your Arrivity financial planner so we can review your situation together.

Please contact us at 206.217.2583 or

if we can assist you or someone you know with financial planning.

Please contact us at 206.217.2583 or info@arrivity.com if we can assist you or someone you know with financial planning.

Liz is a Late Boomer in the sandwich generation who started an independent writing and brand consulting practice after years as a senior marketing executive. She lives in Seattle, Washington. Her mother lives nearby and her daughter comes home during college breaks.

The foregoing content reflects the opinions of Liz Behlke and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.