Inflation in the U.S. has risen at the fastest pace in 40 years. The consumer price index (CPI), which measures the cost of goods and services across the economy, noted the biggest contributors to our current inflation were in automobiles – up 41%, gasoline – up 38% and energy – up 26% year-over-year.[i]

Inflation is particularly painful for retirees who are already on a set budget. There is a debate currently, as to whether inflation has peaked and will decline, has peaked and will remain high, or whether inflation will continue to rise. As a result of our present inflation and future uncertainties, many families and businesses are reconsidering their spending habitsand wondering whether they should curtail future spending. If inflation should stay high or go higher in the future, the following solutions may be helpful.

Shorten Bond Duration

Duration measures a bond’s interest rate risk or sensitivity to interest rate changes. Generally, the higher the duration, the more a bond’s price will drop as interest rates rise. Therefore, with the Fed vocalizing a commitment to steadily raise the Federal Funds Rate in 2022, investors may want to check the duration of their bonds and reposition towards lower duration if possible.

Lean on Value (vs. Growth)

Growth stocks are an investment category that is anticipated to grow at a rate at or above the growth rate of the market.  Growth stocks have done incredibly well throughout the COVID stock market recovery, and generally well for the last decade. However, the tide may be switching to high-quality Value stocks, orcompanies with strong balance sheet fundamentals that are positioned to do well in the future market and are priced competitively in comparison to higher priced Growth stocks.

Review Stock to Bond Ratio

Bonds have traditionally been the steady part of an allocation in a retiree’s investment portfolio. However, due to the current low bond returns and high inflation, holding lower yielding bonds or cash can actually deplete purchasing power in our current environment. Therefore, investors may want to re-examine their current allocation and consider temporarily increasing their stock allocation to help keep up with inflation.

The best mapped investment strategies are customized to the investor’s long-term goals, matched to each individual’s personal risk-tolerance, and reviewed regularly for economic and tax changes. Reach out to your Certified Financial Planner™ for consultation if you think your portfolio is due for review.

The opinions expressed above are solely those of Kondo Wealth Advisors, Inc., (626-449-7783 info@kondowealthadvisors.com) a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, Inc. nor its representatives provide legal, tax or accounting advice.

[i]https://www.wsj.com/articles/us-inflation-consumer-price-index-february-2022-11646857681