Wealth Management: 6 Key Inflation Guidelines
For those retired or nearing retirement and concerned about how to retain purchasing power and preserve their wealth and lifestyle during inflationary cycles, there are prudent portfolio strategies to consider during what is often known as the “distribution phase”. Now is the time to think about the impact inflation might have on your retirement income plan. These 6 strategies can help to build a comfortable retirement in the wake of today’s volatile business, investment and inflationary climate.
- Focus on sequence of returns. As an investor who may be now liquidating principal from your portfolio, sustaining yourself for the long term may be difficult. It is important to look at the sequence of returns from existing investments to determine how to absorb and compensate for any losses. Even more critical is to do this without panicking and simply liquidating the entire portfolio to stop what may feel like bleeding.
- Continue globally diversifying portfolio. Try to have a mixture of stocks, fixed income, and cash from markets world-wide. Exchange Traded Funds, or ETFs, are less expensive than mutual funds and do not come with the hidden fees. These index funds provide the greatest exposure to growth for investments for the least cost and volatility exposure.
- Rebalance during asset allocation. Time is not on the side of an investor who is most likely now taking withdrawals to fund their existing retirement. Continually assess and, if necessary, readjust asset allocations in the portfolio to keep it diversified with respect to global markets and vehicles.
- Stash the cash. Retirees should avoid the position of having to sell assets to sustain themselves during inopportune market conditions. Make certain to have a measure of cash and short-term, highly liquid investments. If investments are underperforming and asset access is necessary for life’s unexpected moments, or inflation causes purchasing power duress, even poorly performing investments do not have to be sold. Instead, liquid assets will hopefully carry you through the tough times while underperforming or other investments can be left untouched to achieve the long-term success.
- Monitor portfolio dividend yield. Be aware of a portfolio’s dividend yield and tap into that as supplementary retirement income rather than reinvesting those dividends back into the portfolio. This will be a way to strengthen purchasing power if and when inflation tries to crimp a planned retirement lifestyle.
- Solidify a relationship with a reliable, disciplined financial advisor. If inflation or other market turbulence strikes, stirring waves of uncertainty about the ability of an investment portfolio to uphold your ideal lifestyle, a trusted financial advisor can help you navigate through and, if necessary, chart a new course within the portfolio to more effectively manage your retirement income plan. Having this type of expert-based support can be reassuring for even the most seasoned investor.
To summarize:
- Review sequence of returns
- Diversify
- Rebalance
- Cash
- Be aware of dividend yields
- Find a disciplined advisor
This can be a tough period for investors especially those nearing retirement. If you are at all concerned about your current financial plan, by carefully analyzing your available assets and resources and making strategic adjustments in the type of investments you own, you can both preserve your hard-earned assets and have the retirement income stream and purchasing power that meets and perhaps even exceeds your needs. Remember, it’s never too late to change or begin a retirement income plan. Be proactive and begin to enact tactics to keep inflation from crimping the retirement lifestyle you deserve. Don’t underestimate the power of now!
About Charles Massimo
Recognized as industry expert and guest speaker at national industry conferences, Charles Massimo is a published author and media subject expert on topics ranging from wealth/asset management to investment and financial planning for high net worth families.