As you know, inflation was big news throughout 2022. But will it continue in 2023? And looking even further ahead, how should you account for inflation in your longterm plans? In regard to the first question, many experts predict that inflation will cool off this year, though there are no guarantees. The high inflation of last year is thought to have been caused by some unusual factors, such as a spike in the demand for consumer goods as the world came out of the COVID-19 pandemic, which led to supply chain issues. Also, the war in Ukraine drove up oil prices, increasing the cost of manufacturing and shipping and driving up the price of wheat and other commodities.
In any case, last year reminded us that inflation needs to be reckoned with as you work toward your financial goals. But how you respond to inflation will depend somewhat on your stage of life. So, here are some suggestions to consider: If you’re still working … Contribute more to your retirement plans. If you can afford to put more money away in your IRA and 401(k), you may want to do so. The more resources you’ll eventually have available in retirement, the better protected you are against the rising cost of living.
Adjust your portfolio objectives with your financial professional. Using tools such as “hypothetical” illustrations, a financial professional can show you some different paths you might take with your investments, given different rates of inflation. So, for example, if you feel that inflation may be higher for a longer period than you once thought, you could request a hypothetical showing how you might need to adjust your investment mix to achieve your long-term goals, given your risk tolerance and time horizon.
