North Bay Wealth Managers Unveil What is Known and Possible in a Challenging Year
This means that you must have funds allocated to investments that may exceed the rate of inflation, but also pose a risk to the principal. Ultimately, the best thing to do is to diversify and plan for the long term.
Rupa Jack and Craig Franklin: Morgan Stanley & Co. economists predict persistently higher inflation or a normalization of inflation.
What our economists are watching are headline and core consumer price index (CPI), personal consumption expenditure (PCE), supply chain/inventory pressures, velocity improvement in the labor market and wage growth, the value of the US dollar and the direction of Fed policy.
To prepare portfolios for the normalization of inflation, reduce the duration of bond and bond portfolios. We assume that the nominal 10-year Treasury rates trend towards 2.5% over the next 2 years.
We believe equity portfolios should focus on companies with pricing power whose management faces margin pressures and supply chain constraints. Add real assets like commodities, infrastructure, gold, real estate, and cryptocurrency-related investments, if applicable.
Emilie Menjou: Inflation has always been a natural phenomenon in our economy.
We continue to believe that the best way to achieve long-term investment success is to select an asset allocation that optimizes risk and return, with a strong emphasis on low-cost investment vehicles .
Our advice to clients is to be well aware of the internal costs of their portfolios, as these costs weigh on their returns and could hinder the success of their investments.
Greg Onken: We think inflation is coming, but don’t see it as a significant near-term fundamental risk. Assured increase in cash flow can be a good tactic to offset some of the risk, hence another reason why we currently like dividend growth strategies.
Bruce Raabe: Surely we all face inflation today. The question is what does 2022 and 2023 look like?
We expect inflation to remain under control. That being said, we are invested in a number of assets that will benefit if inflation is above expectations. Diversification is boring, and that was fine.
Charles J. Root Jr.: We pay attention to all short and long term indicators. So far, we see no indication that significant inflation is imminent. That said, should we see any changes, we would ensure that our accounts receivable are adjusted where necessary.
Rory Springfield: Stay balanced and have exposure in both areas to stay protected against higher than expected inflation as well as any counterfeits we may currently encounter as the lower for longer mantra may continue into the next decade.
Montgomery Taylor: Inflation hurts investors who hold very conservative vehicles, such as bonds and bank CDs. Those with well-diversified portfolios will continue to see growth, which is critical to maintaining their standard of living as prices rise.
Lily Taft: We think inflation has a negative connotation, but it doesn’t have to be scary! Yes, inflation is a risk, but it is also natural with such high economic growth.
The stock market “builds in” inflation and has always been the best way to ensure that your dollars retain their purchasing power. This is because many companies have pricing power, which means they can easily raise their prices to meet rising input costs and maintain their margins.
The companies that have the easiest time maintaining their margins are often commodity producers, energy companies and well-known brands.
John Thiel: While inflation has increased this year, we cannot be certain whether we will have widespread and persistent inflation in the future. It is also possible that as global supply chains and economies recover, inflation will slow and we will enter a disinflationary environment.
Regardless of the direction of inflation, we recommend that our clients remain invested in a broadly diversified portfolio that does not react to inflationary fluctuations. Simply staying invested is one of the best ways to beat inflation over the long term.
Jacques Weber: Our investments are well positioned to withstand periods of high inflation. I don’t expect the year-over-year rise in inflation we’ve seen recently to continue.
Much of the increase we are currently experiencing is more related to the supply chain disruption and lifestyle adjustment caused by the pandemic. I see no indication that this will be a long-term change.
Either way, a well-diversified portfolio should invest in inflation hedges, such as shorter duration bonds and inflation-protected Treasuries.
David Wissinger: The Federal Reserve is targeting inflation of 2% per year, so even that poses a risk for investors and a serious risk for savers. If inflation is skyrocketing, commodities are a good place to invest, along with inflation-protected bonds, all of which are available through exchange-traded funds (ETFs).