Financial Advice During Inflation

It's Financial Planning Month, and with inflation in full effect, it is a perfect time to share a few tips for how to best handle what we are up against.
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For a long time, we have heard that inflation is either this or that. It was a word that got thrown around but didn’t seem to have much impact on our day-to-day lives. Now, though, we are feeling and experiencing inflation constantly – especially with everyday items like groceries or at the gas pump, and inflation seems REAL!

It’s Financial Planning Month, and with inflation in full effect, it is a perfect time to share a few tips for how to best handle what we are up against, so we can plan for the impact that inflation can have on our finances. Before we jump into the below tips, we want to emphasize the importance of consulting with an experienced financial advisor, especially during times of uncertainty. Advisors have the experience and knowledge to assess your risk tolerance and steer you and your investments in the right direction. Here are a few additional tips to keep in mind:

Consider Treasury Inflation Protected Securities
It may surprise you to learn that you can own inflation protected bonds issued by the government. The bonds are called Treasury Inflation Protected Securities (TIPS).

The government sells TIPS that mature in 5, 10, or 30 years. They pay interest every six months at a rate of interest fixed when the bond was issued. The principal value, or what you get in the end, is adjusted to account for changes in the consumer price index. Because interest is paid on the adjusted principal, the amount of interest paid also varies with inflation.

TIPS ensure that you will not lose the purchasing power of your money, but only if you hold the bond until maturity. One downside of owning individual TIPS is, if you need your funds before your bond matures, the price of the bond may decrease if interest rates increase. One way to mitigate the liquidity risk of buying an individual bond is to purchase a TIPS Mutual Fund or ETF. You will have fund managers that take the worry out of your hands about reinvesting funds from maturing bonds and giving you exposure to bonds maturing over a variety of time frames.

Set Aside Enough Money for Bills and Emergencies
Ensuring you have enough money set aside each month to pay bills, in addition to setting aside extra money in an emergency fund, is a necessity. Having the money to pay bills might seem obvious, but it is not always as obvious to save for an emergency fund.

The purpose of an emergency fund is to be prepared in case an income disruption occurs or an emergency happens that causes unexpected expenses. It can prevent someone from going into debt due to those circumstances. We usually recommend saving at least 3-6 months of living expenses; however, saving more, if possible, can provide even more protection during times of inflation.

RELATED: Read why patience rewards investors.

Don’t Let Inflation Scare You Away from Investing
Inflation and volatile markets, to some, might seem like a time to stop investing in order to protect their principal investments. This plan of action, however, can cause more harm overall than sticking with it through the tough times. Why? Because repeatedly, the markets have shown us that they eventually recover from times of high volatility and reach new heights, rewarding the investors who did not back out.

We do have the ability to overcome inflation; however, it cannot be done with one security. Because we don’t know what the future will bring, it is a good time to receive a professional risk assessment and a plan that prepares for a variety of outcomes. Using a diversified portfolio with a variety of investments allows for the best opportunity to protect yourself from inflation.

While inflation is a reality these days, it is important to stay calm and keep the above tips in mind so you can prosper when the storm has passed. If you have questions about this information or your finances in general, call us today at 412-630-6000. Our experienced financial advisors are ready to help.

CFP Board owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNERTM, and CFP® (with plaque design) in the U.S.

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