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Whether worries about inflation turn out to be real or imagined in the future, they have investors worried about their retirement accounts in the present. The key to retirement savings depends on the long-term compounding. This has financial advisors cautioning many of their clients not to buy into the frenzy and sell out too soon.
Don’t Panic Sell
Anywhere you turn, you can see speculation about fears over inflation. You can find both optimistic and pessimistic predictions, with most falling somewhere in between. All of this speculation has had some parts of the stock market reacting to the news, both positive and negative. When the stock market takes a dip, investors are prone to panic and sell, only later to find out that the market recovered and that they missed out on higher returns.
Selling your portfolio in response to the latest news is a big mistake. Building wealth through compounding means that you are in it for the long haul. The market goes up and down, and inflation goes up and down. When you are thinking about the long term, a short period of inflation will not harm the overall performance of your portfolio, unless you panic sell over worries and rumors.
What Investments Are Likely to Be Affected?
In an inflationary economy, the stock market can fall overall, but over time, it still tends to beat inflation. When you look back at this time in the future, a short inflationary period will not be memorable. A longer one may be memorable, but if you have your portfolio ready, then you can ride out the storm safely.
That does not mean that you should not make some adjustments to your portfolio in an inflationary period. One thing that always does well in an inflationary period is consumer goods like toilet paper and milk. Companies that produce and sell the things we need in life and are not likely to be cut out of the family budget when times get tough, making these companies more likely to ride out the storm. People will also not quit taking their medications and going to the doctor. Items that represent discretionary spending are more likely to suffer due to higher prices. For instance, people might choose to watch movies and eat at home, as opposed to going out to a restaurant and a theater.
What Should You Do?
The best advice in any economy is to diversify and don’t panic sell. Following the herd, in this case, could mean wrecking your retirement plans. This does not mean that you should not make any changes, but this too shall pass. The question is where you will be on the other side.
Some investments that have faired well in the past during times of inflation include value stocks and Treasure Inflation Protected Securities (TIPS). While the return on these investments might not be exciting, they offer some level of security in times of high inflation. The rumor mill might have you believe that gold is the way to go, but history indicates that this is not always a good bet. As far as crypto is concerned, recent volatility raises concerns in that area, too.
Anyone can do well in the stock market when times are good. It is easy to stay the course and allow your investments to work for you, but when rumors start to fly, it can cause doubt. The main thing to remember is that over time things tend to correct themselves, and you can find yourself in an even better position in the future, but only if you stay the course and do not follow the herd in a sell-off.
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