Well folks, we finally made it back to the bull markets of yesteryear, but it has come at a steep price: inflation. As of this writing, 2024 should end on a very positive note with portfolios hitting new all time highs this past year and investors feeling very comfortable again with the risk / reward tradeoff. Back-to-back years of strong equity markets have propelled us out of the doldrums of a flat market and looking to the future with a more grounded view of personal finance. And by grounded, I mean knowing our financial enemy: inflation.
When we dial back to the basics of equity investing, the primary driver is to have our savings outpace inflation. Plain and simple. This was relatively easy to do when we saw eight consecutive years with inflation under 2.5%. Then, in 2021, we saw inflation jump by 4%,+ followed by 8%+ followed by another 4%+ and all of a sudden people are paying attention. After 4 years of this shock to our financial system, younger Americans are struggling to keep up. In fact, my retired clients are finally starting to feel the pinch and the growth of their portfolios are allowing them to take more income. The realization that inflation is real, not just a scare tactic used by Financial Planners, is starting to sink in. Gas prices may go down, but the cost of groceries will not. It’s time to make changes in our financial spending policies and ensure that our long-term savings vehicles have the opportunity to grow faster than the rising costs of life. If you are looking to retire in 10-15 years, I’m talking to you. Your beloved high yield money market account isn’t going to cut it anymore. The fixed income yield curve is starting to normalize again, meaning the longer you hold a cash instrument the higher your rate of return should be. That’s normal. That’s how it should be.
So, what can we do to prepare ourselves for this upcoming year? We can beef up our exposure to financial areas that grow during periods of inflation: commodities, real estate, business ownership, smaller equity ownership, tangible assets and other corners of your financial life that have the ability to be worth more than you paid for it over time. Inflation tends to raise prices in everything, not just the consumables that drive the headlines like gasoline and groceries. Position yourself to capitalize on this shift in the financial atmosphere, don’t be caught flat footed when you can read the tea leaves and understand the impact rising costs can have. Part of being a savvy investor is having the ability to turn uncertainty into opportunity and thrive during times of turbulence. You survived the last four years of a flat market….and that, my friends, means you can do anything.
Kimberly Enders CFP® CWS® CERTIFIED FINANCIAL PLANNER™
Enders Wealth Management
37800 Van Dyke Ave, Suite 125
Sterling Heights MI 48312
www.enderswm.com
#kimenderscfp
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