Everything Screams Inflation: What Does it Mean For Your Portfolio? Ep #175

A Wall Street Article, “Everything Screams Inflation,” was published on May 5th, 2021. The opening line says, “We could be at a generational turning point for finance. Politics, economics, international relations, demography and labor are all shifting to supporting inflation.” Is inflation headed higher? The short-term answer is that it already has. So what does this mean for you and your portfolio? Learn more in this episode of Best in Wealth![bctt tweet="Everything is pointing to inflation. So what does it mean for your portfolio? Hear my thoughts in this episode of Best in Wealth! #wealth #retirement #investing #PersonalFinance #FinancialPlanning #RetirementPlanning #WealthManagement " username=""]Outline of This Episode[1:23] Did you know I’m a movie star?[4:51] Inflation is heading higher[7:55] Is inflation moving higher a negative?[10:54] Adjusting your portfolio during inflation[16:50] Why does any of this matter?[20:31] Build a risk-adjusted portfolioInflation is heading higherTwo years ago, the New York Times reported that the Federal Reserve was worried that inflation was too low. It could leave the central bank with less room to maneuver in an economic downturn. But inflation has averaged 2.9% since 1926 and nothing in recent years has come close to 3% (except for 2006 at 3.4% and 2008 at 4.1%). The early ‘70s and 80s demonstrated the worst inflation periods. The worst was in 1979, where we experienced 13.3% inflation. But is inflation trending higher something to actually worry about?The answer to that question depends on where you are in the economic food chain. Airlines now have fully booked flights. Restaurants are struggling to hire cooks and waiters. Why wouldn’t you expect the cost of airfare and meals to rise? Stock prices for JetBlue and Cheesecake Factory surged over 150% from their lows in Spring 2020.Do price increases signal a coming wave of inflation? Or a temporary snapback following the economic downturn in 2020? This is THE great debate. Is this a sign for years to come? We don’t know. But future inflation is one of many factors that investors must take into account when crafting their initial portfolios.Why adjusting your portfolio during inflation = market timingIf rising inflation will persist—and do so for a long time—investors may want to hedge against higher inflation. Others might see it as a market timing signal and make changes to their investment portfolio. Remember this: Market timers would need a rule that directs exactly when and how to revise current investments. “I’ll know it when I see it” isn’t a strategy at all. I believe that a rule based on inflation estimates its market timing dressed in different clothes.A successful effort means you have to somehow guess when to revise your portfolio and when to change it back. Market timers get it wrong over and over again. Remember, current market prices already reflect the concerns—including inflation. Market timing creates a lot of stress when you should just remain disciplined with a strategy.[bctt tweet="Why is adjusting your portfolio during inflation the same as market timing? Hear my thoughts in this episode of Best in Wealth! #wealth #retirement #investing #PersonalFinance #FinancialPlanning #RetirementPlanning #WealthManagement" username=""]Is inflation moving higher a negative?Imagine it’s New Year's Day in 1979. The market produced a positive return in 1978, ending up 6.6%. What’s the problem? The return failed to keep pace with inflation for the second year in a row. Inflation in 1978 was 9%. Your crystal ball should inform you that over the next two years...