From Fidelity

Inflation may have you counting your pennies and paying closer attention in the checkout line. If you’re like many Americans, you may have even run up some credit card debt trying to keep up with skyrocketing prices.

The most recent inflation report put the rate of price increases at 8.5%. For families that are able to absorb higher prices, inflation may be a minor annoyance but for many Americans, months of painfully high prices is an emergency.

No one is sure how long inflation will stay elevated above historical averages but it could stick around longer than anyone would like. Learning how to fight inflation, now and in the future, can help make sure your spending power can keep up.

1. Stay invested in a diversified mix

If you haven’t checked in on your portfolio recently, now is a good time. As always, Fidelity suggests having a diversified mix of stocks, bonds, and other investments consistent with your personal goals. If you have a diversified portfolio filled with stocks, bonds, and short-term investments, you may already be well-protected from inflation. But within a diversified portfolio, there are a variety of ways to add inflation protection. 

Investments with the potential to keep up with inflation — or exceed it — over time typically come with some risks. Historically, stocks have offered the highest average annual return of the traditional asset classes — along with more volatility — followed by bonds, and short-term investments.

For people with a long time frame for investing, the growth potential of stocks can make the risks worth it. You may have a better chance of reaching your goals, like retirement or funding a child’s education. Investing conservatively comes with its own set of risks, namely, the possibility that your money won’t buy as much in the future as it does now.

2. Stay financially healthy with a budget

With the price of food and energy rising fast, inflation is already hitting most of us right in the budget. A recent analysis from Moody’s Analytics found that the average household is spending almost $460 more per month because of inflation.

As you look for ways to tighten your belt, keep an eye on your budget. Fidelity suggests spending no more than 50% of your take-home pay on essential expenses like food and housing, to give you room to save for retirement, plan for short-term goals, and spend on nonessentials.

3. Boost your emergency fund

The cost of essential expenses is rising much faster than discretionary items, and this means your emergency savings may need to grow too. We recommend setting aside enough money to cover 3–6 months of essential expenses in case of emergency. When you factor in the cost of inflation, is your emergency fund still sufficient?

And think about where you have the money stashed. Can you earn a higher return with a relatively low risk investment that you can depend on if you do need to access it?

4. Review your insurance

Now is also a good time to be sure you still have sufficient life insurance. One simple guideline is to aim for 5 to 10 times your annual salary and bonus, but prices are rising faster than income these days, so that approach could leave you with insufficient coverage.

To do a more robust calculation, start with your family’s day-to-day needs — the entire amount of money it takes to run your household each month. Next, plan for larger expenses such as college, paying off student loans, a mortgage, other debts, running a business, or potential medical issues.

Similarly, this would be a terrible time to find that you’re underinsured at home in case of fire or theft. The price of construction materials alone has skyrocketed, not to mention all the things in your house you might have to replace. So the next time your homeowners or renters insurance is up for review, take a close look to make sure you have enough coverage.

The truth about surviving inflation

When the cost of everything goes up but your income stays the same, there are really only a few options. You can buy less, buy cheaper substitutes, or try to find more money.

In the long run, healthy personal finance fundamentals can be one of the best ways to help set yourself up for success in any economy. Spending less than you earn and avoiding high-interest debt can set a strong foundation for your future. Build on it by keeping money on hand for emergencies, strategies to protect what you have, and investing for growth potential. Navigating uncertainty may be easier when you focus on the things you can control.

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About LRPC’s Monday Morning Minute

Lawton Retirement Plan Consultants, LLC (LRPC) Monday Morning Minute is crafted to provide decision-makers with important information about the economy, investments and corporate retirement plans in a format that allows a reader to consume the information in less than 60 seconds. As an independent, objective investment adviser, LRPC has access to many sources of research and shares the best and most relevant information with its readers each week.

About Lawton Retirement Plan Consultants, LLC

Lawton Retirement Plan Consultants, LLC (LRPC) is a Milwaukee, Wisconsin-based independent, objective Registered Investment Adviser (RIA) providing investment advisory, fiduciary compliance, employee education, provider management and plan design services to employer retirement plan sponsors. The firm specializes in sustainable investment strategies for retirement plans that incorporate Socially Responsible Investment (SRI) factors and Environmental, Social and Governance (ESG) elements. LRPC currently has contracts in place to provide consulting services on more than a half billion dollars in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or bob@lawtonrpc.com or visit the firm’s website at https://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

Important Disclosures

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, a plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges, and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.