Inflation is on the rise. What should I be doing to protect my portfolio?
Alpine Bank Wealth Management Q&A with Melissa M. Knutson, CFP®, Vice President
Thanks to a decline in COVID infection rates, stimulus spending and historically low interest rates, the economy is ramping up. With this economic uptick, we’re beginning to see inflation in our everyday purchases and living expenses. Consumers are seeing higher prices on groceries, health care, gas, rent and more. Consider this: If inflation rises an average of 3% annually, a person would need to double his or her money every 24 years to continue to purchase the same goods and services in today’s dollars!
Cash in the bank is a safe and secure place to place hold your money. It’s always important to keep a minimum of three to six months of living expenses in reserve as emergency savings. However, beyond emergency savings, too much cash can mean you’re safely losing money. For example, if you’re currently earning .03% in your savings account—and inflation is 3%—that translates to a decline of 2.97% of your purchasing power every year.
Bonds can provide stability and consistent income to a portfolio. However, fixed income investments are particularly vulnerable as interest rates will inevitably start to increase to slow down inflation. Consider owning bonds with shorter maturities or Treasury Inflation-Protected Securities (TIPS) for a portion of your savings.
Owning stocks can provide the greatest amount of growth opportunity, but at greater risk. Long-term investing in a diversified quality equity portfolio is one of the most effective tools available to combat inflation risk.
Talk to your wealth management advisor to review your current asset allocation—ideally a mix of cash, bonds, and stocks—to determine your most appropriate individual strategies today, to fight inflation tomorrow.
Contact Melissa Knutson to learn all that Alpine Bank Wealth Management can do for you. Call her at 877-808-7878 or email her here.
Products of our Wealth Management service are not FDIC insured, may lose value and are not bank guaranteed.