High Inflation and Rising Rates: What it Means for You
Over the past year, the U.S. has experienced a dramatic increase in prices for food, fuel and many other essentials, with the inflation rate hitting a 41-year high of 8.5 percent in March. In response, the Federal Reserve has been aggressively raising interest rates to cool the economy and will likely make more incremental increases through 2023. To put it mildly, it’s a time of economic instability that has households of every income level worried about their financial footing.
While some families aren’t necessarily panicking about the cost of gas and groceries, many are concerned about the impact of high inflation and rising rates on their investment portfolios, long-term legacies and previously planned big purchases. Preserving capital, mitigating risk and maintaining purchasing power are all top of mind. There is no perfect approach to navigating through an economic storm, so you should work with your advisor to understand the obstacles and prepare to change course, if only temporarily.
Here are a few thought starters to further investigate.
Be Open to New Strategies
When it comes to investing throughout the year, keeping it simple is usually a wise approach. But in turbulent economic times, like we’re seeing today, investors may benefit from some slightly more sophisticated maneuvers and strategies. In order to determine which make the most sense for your unique financial situation, consult your financial advisor. They can help you learn about additional options and work to determine the best strategy with you. Be open to making a change – it just might pay off.
Don’t Neglect Growth
While guarding against potential investment losses is prudent, it’s important to balance short-term protective strategies with long-term goals for building wealth. After all, high inflation erodes the purchasing power of funds that aren’t appreciating. Investors need to think carefully, not only about their own longevity and retirement needs, but about the financial legacy they’d like to leave behind some day. History suggests that, despite inevitable setbacks, the stock market remains a reliable generator of growth when viewed over the long term.
Pull the Trigger on Planned Purchases
As interest rates rise, borrowing money becomes more expensive. So, it may make sense to move quickly on major purchases that require a loan. If you’re already set on buying a beach house, for example, locking in a fixed-rate mortgage this year will likely cost considerably less than six months from now. Alternatively, buying in cash would avoid the concern of paying interest altogether, and with an appreciating asset like real estate, it could prove to be a shrewd investment to offset inflation.
Re-budget for Big Expenses
While routine daily expenses may not cause much concern, skyrocketing costs for big-ticket purchases can make a meaningful dent in even the healthiest of nest eggs. Planning an extravagant wedding? Sending a child to an Ivy League school? Dreaming of a bucket list vacation? Be prepared to pay more, perhaps much more, than you originally expected.
Don’t Go it Alone
When the economy throws investors a curve ball, the objective advice of an experienced financial professional becomes more valuable than ever. Reach out to a Frost advisor for help with strategies tailored to your unique goals, risk tolerance and time horizon.
Would you like more information? Contact Evans at 713.388.1367 or evans.attwell@frostbank.com.
Evans Attwell
Senior Vice President
Frost Bank
Investment and insurance products are not FDIC insured, are not bank guaranteed, and may lose value. Brokerage services offered through Frost Brokerage Services, Inc., Member FINRA/SIPC, and investment advisory services offered through Frost Investment Services, LLC, a registered investment adviser. Both companies are subsidiaries of Frost Bank. Additionally, insurance products are offered through Frost Insurance. Deposit and loan products are offered through Frost Bank, Member FDIC. Frost does not provide legal or tax advice. Please seek legal or tax advice from legal and/or tax professionals.