It’s no secret that inflation is on the rise, impacting millions of Americans. Mix that in with on-again off-again tariffs, and it may be a good time to assess if your accumulated wealth is being managed in a way that can withstand inflation and market volatility. It’s important to note that a financial plan is not supposed to be stagnant, it should change as your personal situation and world economic conditions shift. But anxiety around the market and inflation is real, so how can we get ahead of it?
Remember, Nothing Stays the Same Forever
In early April, we saw massive swings in market sentiment as Trump teetered back and forth about tariffs. While we all hope to avoid increased inflation or, worse, a recession, we have to be strategic in how we face challenges in the market. This is a good time to remember that the markets are similar to us in the sense that nothing stays the same. The challenges you faced in your early 20s are not the same ones you have today. How long they took to resolve may vary, but they never stayed forever. Imagine if you followed your initial knee-jerk, emotional reaction to those challenges you faced when you were younger. Making decisions based on emotion, especially fear, rarely helps you reach your goals, and frankly, they can sabotage you from ever getting close to them.
So, going back to our current market situation, what can investors do right now? Well, depending on their specific situation, the answers vary.
If You’re Young, or You Have More Than 10-15 Years to Retirement
If you have a long time-horizon until retirement, it may be beneficial to ride out market volatility and stay invested. A financial principle called “dollar cost averaging*” may apply to you. Continuing to invest during both market lows and highs could help smooth out the impact of short-term market fluctuations and may improve long-term results.
See the chart below:
This chart shows that those who exit the market the day after every -2% market move or worse over a 25-year time period usually underperform those who remain fully invested. When you leave the market, you don’t just avoid potential losses on future bad days, you also miss out on potential gains on future good days. Ultimately, missing just a few of the market’s best days, or getting back into the market only after the market is already up, can significantly impact long-term returns. Because remember, just like in life, nothing stays bad forever; good days will come again, and the market has historically recovered.
*Dollar cost averaging is an investment strategy in which a fixed dollar amount is invested at regular intervals, regardless of market conditions. This approach does not guarantee a profit or protect against a loss in declining markets. Because dollar cost averaging involves continuous investment, investors should consider their ability to continue investing during periods of market downturns. Before implementing this strategy, consider your financial ability and investment goals.
If You’re Older and Getting Close to Retirement
As you get closer to retirement, continuing to stay invested in volatile stock markets exposing all your savings to stock market risk may not make sense due to a financial principle called “sequence of returns risk.” With all things being equal, someone who retires during a down market and begins withdrawing funds, could see their retirement savings drop precipitously for the long-term, versus someone who retires when markets are going up. This is a very important consideration at the beginning of your retirement when your account balance may be at its highest, but unfortunately, no one has a crystal ball. You may need to rebalance to help reduce portfolio risk.
Consider Rebalancing* Your Portfolio
First, you’ll want to review your portfolio’s ratios of international stocks, large-cap and mid-cap, bonds, cash, and fixed options to ensure they make sense in the current economic environment. Different asset classes have varying cycles of performance, which can help address inflation headwinds. But keep in mind that there may be other ways to help manage portfolio risk, especially as you head toward retirement.
Sometimes considered a separate asset class, in the last few years, annuity sales have risen as approximately 10,000 people per day turn 65 in America. An annuity is a contract between an individual and an insurance company designed to provide a monthly income during retirement. Some annuities even provide retirement income that won’t run out no matter how long you live, guaranteed by the financial strength of the insurance company providing the annuity policy. There are many different types of annuities, contracts can be complex and illiquid, and it is important to maintain other cash and investments to help support a balanced retirement plan. Furthermore, annuities are not right for everyone. It’s advisable to work with a financial professional to look at your overall plan, compare your options, and closely examine contract terms.
*Rebalancing is the process of adjusting your investment portfolio to maintain your desired asset allocation. Over time, due to market fluctuations, your portfolio’s asset mix may shift, potentially increasing risk or deviating from your investment goals. Rebalancing aims to restore your portfolio to its target allocation. It is important to note that rebalancing does not guarantee a profit or protect against losses.
Other Personal Actions You Can Take to Manage Inflation
Additionally, to help make your dollar in your day-to-day life last longer, do a thorough review of your spending. This is the time to evaluate essential vs. discretionary expenses, for example, a mortgage versus a new car. This gives you a chance to identify unnecessary spending that you can cut back on. Most people are shocked by how much they were spending on things they did not need!
Some common expenses that are good to look at critically during this audit:
- Takeout & Dining – Frequent restaurant visits, coffee runs, food delivery, and takeout orders.
- Subscription Services – Streaming (Netflix, Hulu, HBO Max), music, gaming, news, and fitness apps.
- Retail & Impulse Shopping – Clothing, accessories, home décor, and non-essential purchases.
- Unused Memberships – Gym memberships, fitness classes, warehouse clubs, and subscription boxes.
- Premium TV Packages – Expensive cable or satellite plans with unnecessary channels.
- Frequent Travel – Weekend getaways, flights, hotels, and vacation entertainment costs.
- Luxury & Self-Care – Salon visits, spa treatments, manicures, and pedicures.
- High-End Brands – Designer clothing, accessories, and premium tech gadgets.
- Hobby Expenses – Collectibles, gaming, crafting supplies, and other leisure-related purchases.
- Tech Upgrades – Constantly replacing smartphones, tablets, and accessories with the latest models.
- Costly Entertainment – Concerts, sporting events, amusement parks, and other high-ticket experiences.
Also, see if you can negotiate on those essential bills. While many essential bills are a fixed amount, some can be adjusted or reduced. You may be able to lower expenses for service contracts like internet or insurance. You may also be able to lower your credit card rates. While there’s no guarantee, it never hurts to call a service representative and see if you can get a better price for the things you have to pay for.
While dealing with inflation and market volatility is no one’s ideal situation, it doesn’t have to be a nightmare either. With a strategic approach, you can navigate this stressful time and work toward financial stability. Do you need help getting your accumulated assets inflation-ready and putting a plan together to manage market risk? Call us today! You can reach The Financial Specialists at 319-393-6149 or by clicking here!
Sources
https://www.aarpinternational.org/initiatives/aging-readiness-competitiveness-arc/united-states
Securities offered through The O.N. Equity Sales Company, Member FINRA/SIPC, One Financial Way Cincinnati, Ohio 45242 (513) 794-6794. Investment Advisory services offered through O.N. Investment Management Company.
This material is provided for informational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities. All investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful. Past performance is no guarantee of future results.
