How Inflation Puts Risks on Your Portfolio

Over the next 3 decades, Three factors are set to define our lives, according to Jamie Dimon, CEO of JPMorgan Chase. Post-Covid economic recovery, high inflation, and Russia’s invasion of Ukraine with the following humanitarian crisis. “They present completely different circumstances than what we’ve experienced in the past – and their confluence may dramatically increase the risks ahead,” he said.


Financial literacy


Americans’ financial behavior is going to be altered for months to come as a result of inflation and a major conflict, making financial literacy even more vital. Middle-income households are growing more concerned about inflation, with the majority exploring lifestyle adjustments to reduce expenses, according to Primerica’s first quarter 2022 Middle-Income Financial Security Monitor. Based on the survey, 66% believe inflation has already had or will have an influence on the purchasing power, and many individuals are considering lifestyle changes as a result of increased expenses.


Concerns over the Ukraine invasion are also rising, with 61% respondents expecting it to have influence on their financial behavior and decisions in the coming months. However, given the present economic climate, many respondents expressed concern about tracking their financial health and did not know where to begin. Moreover, the majority of respondents felt they should begin planning for retirement before 30, but many do not follow their own advice. Almost one-third of respondents do not contribute to a savings account, maintain a budget, contribute to an investment account, or make a monthly financial budget. These issues highlight the pressing necessity of financial literacy. 



“As we face the highest inflation levels in the past 40 years, it is critically important for middle-income families to understand how to budget, manage debt, save for the future and protect their incomes,” said Glenn J. Williams, CEO of Primerica.”These priorities compete for limited financial resources, making the need for professional guidance more important than ever.”


Effect on investments


As the Federal Reserve announced it would raise interest rates by 0.75%, buying a home or expanding a business should become more expensive, restraining spending and slowing the broader economy. However, even a low inflation rate, such as we’ve seen in recent decades, can significantly diminish purchasing power over time. And, in a few years, when you retire, you may be particularly sensitive to inflation since you will no longer receive regular wage increases that can help you keep up with the cost of living. You’ll also need to defend yourself against the risk of running out of resources. As a result, you must be informed of how inflation may affect you.


When inflation rises, assets with fixed, long-term cash flows perform badly because the buying value of those future cash payments declines over time. Commodities and investments with changeable cash flows fare better in the face of rising inflation.



Inflation can reduce your savings, even if you have them in a savings account with an average return rate. When a person works, their wages usually stay up with inflation. When you live off your savings, such as in retirement, inflation reduces your purchasing power. In order to guarantee that you have enough assets to endure through your retirement years, you must consider inflation’s effect on your retirement funds.


Fixed income investments


Investors often purchase fixed income instruments such as bonds, treasuries, and CDs in order to get a consistent income stream in the form of interest payments. However, because the interest rate on most fixed income assets remains constant until maturity, the buying power of the interest payments falls as inflation rises. As a result, when inflation rises, bond prices tend to decline.




Stocks have outperformed inflation over the previous 30 years, according to a study conducted by the US Bank Asset Management Group. In theory, a company’s revenues and profitability should rise in pace with inflation. This means that the stock’s price should grow in tandem with the overall price of consumer and producer products.


Inflation is unavoidable, but by taking the appropriate steps, you may avoid having it devalue your future. Our 401kFiduciaryOptimizer software can help financial advisors better analyze your portfolio and find alternative funds with better performance. Schedule a Demo with us to see how you can optimize your portfolio or reach out to to set up a demo.


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