What is Inflation and Why is it Important?

by | May 24, 2021 | Retirement Planning

If you’re a retiree or you’re looking to retire and you have concerns worry about inflation and how that affects you, listen in to Gabe and Ryan, financial advisors.

Are we seeing inflation? What is it? How does it apply to you?

It seems like everywhere we turn right now we keep hearing about this idea of inflation. “What is inflation and why is it important?” It’s a great question we talk about a lot.

Inflation: Are prices rising at the targeted number?

We know the federal reserve is targeting a 2-3% inflationary number, yet continue to tell us they’re having trouble getting there. However, we are seeing data that is contradictory to that. Whether you’re looking at the cost to build a home or other means of construction increasing in price, or looking at shipping costs increasing a lot because of health care, we do see prices of certain things going up. Although, its interesting that the inflationary number coming from them doesn’t include energy costs, the cost to move your car around (gas), and food costs because they consider those things to be commodities and are variable.

Inflationary metrics affecting portfolios: Bonds

With all that said, we are seeing for the first time in a long time, some inflationary metrics. It’s something we are paying attention to and will have an impact on our clients’ portfolios. Where inflation can really get into retirees’ portfolios is mainly when you have bonds. Sometimes, you have to raise interest rates to keep up with inflation. Rising interest rates, as we’ve talked about before, can hurt bonds in the short-term.

Inflationary metrics affecting portfolios: Corporate earnings

We’ve also looked at corporate earnings and noticed that inflation is also apparent there. Everything costs more money, which eats away at some of the profits. This is definitely something we are paying attention to right now.

With that, if you have any questions about inflation, interest rates, or how any of this affects your portfolio, we’d love to have you come by.

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