We’ve been hearing plenty out of the Federal Reserve Board from the business news outlets in recent weeks. Every wiggle of the Consumer Price Index has been dutifully tracked and reported, for those on inflation-watch. With recent inflation measures above the FRB’s 2% target, the finger-pointing becomes bigger news than the numbers themselves.
While we have fingers that are capable of pointing, we know they have better uses. One such use is preparing your portfolio to account for inflation. And this may actually take less energy than pointing and wagging our fingers after all!
When inflation dominates headlines, straight-line thinking starts taking over: how will we afford to buy groceries when gas is $300 a gallon? (I’m going to guess that we would find cuts elsewhere, like our cable bill, well before we starved.) And investors sometimes hop out of the market because the cost of doing business gets higher.
And those high-growth, pre-profit darlings will take a hit because a rise in interest rates—nominally to combat inflation—means these companies will pay more for the money to continue their pre-profitable journey.
When we invest in individual companies, we’re able to spot those holdings that benefit from a position of strength, whose business gives them the pricing power to ride out inflationary pressures. We’re excited about these holdings, and since we’re investing for the long haul, we’re expecting to ride along through multiple periods of rising and falling rates.
When we stretch out our time horizon, these major events look more like occasional bumps on the road to wealth.
So, in a way, we’re already investing for times of higher inflation. We make no guarantees that our way is better than any other, but we recommend caution when anyone acts like they have a crystal ball for this topic.
Let’s zoom out even more. At its core, asking about “when to get out” means that an investor will also have to ask “when to get back in”: success would require the investor to be lucky twice. We don’t prefer any scenario that slashes our odds so unnecessarily.
Clients, when you have questions or concerns, please reach out.
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