Strategies to protect your goals from consistent inflation

If you’re like most investors, you’ve noticed the impact of higher inflation in recent years – whether at the gas pump or the grocery store. American investors are experiencing the effects of prolonged inflation for the first time since the early 1980s. As a result, many are concerned about how inflation levels will impact their ability to reach their long-term financial goals. While it may not be possible to avoid the effects of inflation altogether, there are several strategies investors can utilize to mitigate the impact of inflation on their financial plan. Here are three investment considerations that may help address inflation concerns and better prepare your goals for long-term success.

1 – Keep your money invested

When the inflation rate soared in 2022, stock and bond markets declined. Some investors responded by pulling money out of the market. This can be counterproductive as investors too often miss much of a market’s recovery gain before they put their money back to work. For example, the U.S. stock market (as measured by the Standard & Poor’s 500 stock index, an unmanaged index of stocks often used as a benchmark of market performance), declined 25% between January and October 2022. But by the end of 2023, the S&P 500 regained nearly all of the ground lost in the bear market.¹ It is normal for markets to go through ups and downs. Investors that stay the course and keep their money invested commonly see their investments make up gains that were lost in a sudden downturn. While it may be tempting to remove yourself from the market during volatile periods, it could be helpful to stay invested at a level that reflects your risk tolerance.

2 – If time is on your side, take advantage of stocks

Over time, stocks have historically outpaced inflation, an important consideration as you try to build wealth to achieve your ultimate financial goals with more confidence. This doesn’t mean that year-in, year-out, stocks will keep you ahead of inflation. 2022 is a good example of a year when stocks declined as inflation rose. But if you have time to let your money work for you, stocks have historically outpaced the rise in living costs. According to data collected since 1871, stocks have grown faster than inflation for holding periods of 20 years or more.²Investors who can ride the highs and lows of markets are often better suited to keep up, if not pass, the rate of inflation.

3 – For short-term money, seek higher yields

You may have money set aside for short-term needs, such as your emergency fund or to cover upcoming expenses. In these times of elevated inflation, you’ll want to find ways to earn more competitive yields on your short-term savings. Search out options such as money market funds, CDs, short-term U.S. Treasury securities and other savings vehicles that offer yields that may keep pace with inflation. Utilizing these tools may allow you to stay more liquid with your investments while hedging against the impacts of inflation.

Whether an economic cycle brings conventional or elevated inflation it should be considered as a factor of your long-term financial plan. A financial advisor can help develop a comprehensive strategy that addresses the inflation environment today and over the long term.

Daniel P. Morrissey, CFP^®, CFS^®, CRPC^TM, is a Private Wealth Advisor with Heartland Wealth Advisors a private wealth advisory practice of Ameriprise Financial Services, LLC. in Lebanon, Pennsylvania. He specializes in fee-based financial planning and asset management strategies and has been in practice for 40. To contact him, go to www.heartlandwealthadvisors.com or call (717) 270-6937 at 1536 Cornwall Road, Lebanon, PA 17042.

Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

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