Inflation and 3 Actions to Consider:

Full Transcript:

Inflation is hot right now. Let’s talk about what’s happening and three things you should consider doing.

Inflation’s been all over the headlines, and for a good reason. This past month, the consumer price index increased by 7% on an annualized basis. That’s the highest it’s been since 1982. Let’s break that down. The consumer price index is the weighted average of what people pay for goods and services. It is also the most common measure of inflation. In 2021, a couple of the big hitters were cars and energy. New car prices increased by 12% throughout the year, and used car prices increased by an astonishing 37%. In addition to car prices, increasing energy prices also increased as oil continues to rebound from the 2020 lows. Gasoline prices increased by 50%. Now, for most of you watching this video. A healthy oil price of $60 to $80 is probably a good thing.

Now we’ve talked about what’s happening, let’s talk about things that you should consider doing. First and foremost, try to stay focused on things that you can control. Worrying about things that are outside of your influence can be counterproductive. Now, interest rates are already starting to rise and will likely continue to do so as the Fed has indicated that they will bump them up throughout the year. If you have an adjustable-rate mortgage, consider refinancing to a fixed-rate mortgage. Additionally, look at any other adjustable-rate debt that you may have, like some private student loans.

Next, if you’re considering that next vehicle purchase, it may make sense to hold off a bit. Car prices have increased due to the disruption in the supply chain and higher than normal consumer demand. This will likely level off, but it may take some time. If you must buy that next car now, it may actually make sense to buy something new instead of something used.

And lastly, stay invested. This is the most important and is probably also the hardest. If we step back and look at the stock market, going all the way back to 1926, you can see that the inflation-adjusted rate of return or the real rate of return averaged 7% per year. Now, past performance is no guarantee of future performance. Make sure you have an asset allocation that you can stick with through any market condition. And although they may be facing some increased headwinds with rising interest rates, bonds are still an important tool for diversification.

Any rapid change in the economy can be scary. Use your financial plan as the guide for what is best for you. And remember, stay focused on what you can control.