I’m a Financial Advisor: Advice I Give My Clients on How To Combat Inflation
Written by
Laura Bogart
Edited by
Kristen Mae
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
Inflation isn’t a four-letter word, but it may as well be in terms of its impact on consumers. Defined as the rate at which the general level of prices for goods and services rises, inflation reflects consumers’ purchasing power.
So, to make the math easy, if inflation is at 5% on average, prices have increased by 5% compared to the year before — meaning you essentially get less product for the same amount of money. This short-term spike in your monthly expenses can impact all areas of your financial situation, such as skyrocketing credit card bills or your overall investment strategy.
Financial advisors worth their salt work with clients to help protect their money against the slings and arrows of inflation. To learn more about the advice they’re giving clients now, GOBankingRates talked to a few who shared some key takeaways and insights about what you can do to help guard your money and protect against inflation.
Stay in the Market
Evan Luongo, CFP, founder of NoDa Wealth Management, knows that high inflation can make investors skittish, whether it’s about their mutual funds, stocks or bonds. However, he wants you to know that one of the most essential ways to manage inflation risk is by staying invested — especially because cash underperforms inflation.
“If you’re in the market, you’ve taken a big step forward in combating inflation,” Luongo said. “Stocks and many bonds do a great job of outpacing inflation over the long run, which begs the question: What is your timeline?”
Speaking of timelines, Luongo regularly asks his clients what their long-term goals are so they can build effective protection measures.
“If unexpected inflation spikes over the next 1, 3, or 5 years, will it erode your purchasing power? If you need your investments to fund a goal in the short run, then maybe!” he said. “That’s when I advise clients to have some sort of inflation protection on their assets. That way they are protected.”
On the other hand, if his clients don’t need access to their investments in the near future, Luongo says there’s typically no need for inflation-protected bonds, since long-term investment returns historically outpace inflation.
Get Structured Life Insurance
According to Lucas Barcelo, founder of ThrivIn, one of the most underrated tools for fighting inflation is properly structured life insurance.
“I know people don’t always think of it that way, but cash value life insurance grows over time, gives tax-free access to cash when things get tight, and doesn’t even fluctuate with the market like traditional investments,” he said. “Plus, it adds a layer of certainty in a financial world that’s looking more and more uncertain every year.”
Barcelo wants people to understand that inflation will go through its ups and downs, and your financial plan should be built to endure both. “Our job is to create a plan that doesn’t just ride the wave but actually builds something solid underneath it.”
Rethink College Savings Strategies
As the director at CollegeWell, as well as an accredited financial counselor and certified college financial consultant, Jonathan Sparling is uniquely qualified to address parents’ concerns about their children’s college funds and inflation.
He said that recent market volatility has caused some families to see dips in their college savings accounts. For those seeking safer, less volatile options, he suggests reviewing the current asset allocation of their 529 savings plans.
“It might make sense to reallocate a portion of your savings to fixed income or cash, especially for families with a short runway before college,” he said. “Families should also look to states and the national Private College 529 that offer prepaid 529 options. Unlike traditional plans, prepaid plans are not exposed to market conditions, and the underlying value increases as tuition rates go up, essentially protecting against tuition inflation.”
Final Take To GO: Financial Planners Can Help Your Inflation Hedge
High inflation does more than just dilute what you can get with your dollar — it also hits you in the savings account. Sure, the amount you have in your emergency fund or investment portfolio might go up or even stay the same, but its real value will still decrease over time if the interest it earns doesn’t outpace inflation.
In a nutshell, your money buys you less over time, putting your financial goals further out of reach. However, working with the right financial experts can help you stay on course with important money moves like your long-term investment strategies and retirement plans.
Caitlyn Moorhead contributed to the reporting for this article.
More From GOBankingRates
