Should I Be Worried About Inflation?

Inflation

The topic of inflation is getting lots of attention these days.

Inflation, for starters, is defined as the decline in purchasing power of a given currency. So, as an example, if the US Dollar experienced 2% inflation over a given period, the purchasing of $1 gets reduced to $0.98. Because a dollar is worth less, you must spend more to fill your gas tank, buy a gallon of milk, get a haircut etc. In other words, inflation increases your cost of living.

Is inflation good or bad?

Inflation can be a tricky economic indicator: If it is too high, it erases the purchasing power of consumers; if it is too low, it can reduce economic growth. Inflation can also be bad for stock markets as it often leads to higher interest rates, meaning big firms have to pay more to service their debts which can then erode their earnings.

What is causing inflation now?

Over the past 10 years inflation has basically held steady, averaging a bit under 2%.  However, over the past year, inflation has increased at a rate of 5%, well above the ten-year average.  While it is easy to point the finger at the Federal stimulus plans that pumped money back into the economy as the world came to a halt, the real cause of inflation seems to be a bit more nuanced.

Members of the Federal Reserve, along with a chorus of economists, argue that most of the inflation we are experiencing now can be attributed to bottlenecks in a variety of supply chains as demand surges with a reopening economy.

Translation: Consumers have cash to burn and suppliers are struggling to meet demand! The overwhelming majority of recent inflation is derived from spikes in industries that were hammered by the pandemic. Demand has skyrocketed in a few notable areas: raw materials, energy, metals, food, used automobiles, appliances, and travel.

Where does inflation go from here?

Whether inflation is transitory (i.e. brief, short-lived) or not is a common question being asked. If employment reports start to outpace analyst estimates, or, if inflation gets too high, the Federal Reserve may pull back on their $120B monthly bond purchases and eventually raise interest rates.

At their June meeting, the Fed moved up their targeted interest rates increase from 2024 to sometime in 2023. There are some members of the Federal Open Market Committee (FOMC) that believe the U.S. should start raising rates as early as 2022.

What’s it mean for you?

There is a possibility, not a certainty, that inflation may impact the everyday investor. Even if inflation moderates, as the Fed anticipates, it is still expected to run at almost 2.5% over the next five years, resulting in a negative inflation-adjusted return on Treasuries. With all that said, though, the economy is an incredibly complex and unpredictable system.

Should you be concerned? For those in, or nearing, retirement who live on a fixed income, any reduction in purchasing power can be unsettling. While there is no way to truly “inflation-proof” your portfolio, there are strategies that can lessen the blow:

  1. Maintain a globally diversified portfolio!
  2. Hold a portion of fixed income in Treasury Inflation-Protected Securities (TIPS)
  3. Consider Real Estate Investment Trusts as a hedge against inflation and underperforming equities (rents and values tend to increase when prices do)
  4. Avoid fixed income assets that have long durations (5+ years)
  5. Prioritize fixed rate debt > adjustable rate debt, and/or consider converting adjustable rate debt to fixed rate where practical.

Seven Types of Rest You Need

In a perfect world, we’d all get 8hrs of quality sleep each night. In reality, many of us fall short on this – either in terms of length (i.e. getting more like 6-7hrs) and/or quality (i.e. restlessness).

However, according to physician Saundra Dalton-Smith, M.D., author of Sacred Rest, “If you’re waking up (after sleeping) and still exhausted, the issue probably isn’t sleep. It’s likely a rest deficit.”

Listening to your body, and getting a better understanding of which type of rest you’re in need of is essential to recharging your battery and feeling your best.

Physical Rest:

Sign you need it: Physically exhausted, struggle to keep eyes open.

Rest to get: Go to sleep 30mins earlier, swap out the morning HIIT class for some restorative yoga.

Mental Rest:

Sign you need it: Brain feels like it’s going to mush. You’ve been staring at the same page for 10 minutes. You just sent a barely comprehensible email.

Rest to get: Turn off your screens. Repeat a calming mantra. Meditate or follow a guided meditation via Youtube or a meditation app (i.e. Calm, Headspace).

Social Rest:

Sign you need it: You feel alone, or disconnected/disengaged from friends and family.

Rest to get: Social rest feels like interacting with another person and leaving fuller than you started. It comes from meaningful interactions where there is no fear of disapproval or rejection – to be completely authentic with another human.

Social Rest – ideas to consider: Talk to a friend or close family member on the phone (NOT via text). Set aside time (15-30mins) to discuss day and emotions with spouse or partner. Go on a walk (or schedule one!) with a friend. Join a book club. Setup a coffee date with a friend. Plan a double date with another couple. Plan a getaway with your spouse or a friend.

Creative Rest:

Sign you need it: Sluggishness in solving problems or brainstorming new ideas.

Rest to get: Take some time to STOP doing and instead to observe, to think, to journal, to explore. Go on a walk in nature, or read an engrossing book. Anything to take the pressure to create off your mind.

Emotional Rest:

Sign you need it: Tolerance for strong feelings is a lot lower, you lose your temper more easily, you reach the tears threshold faster than usual.

Rest to get: Remove emotional triggers (like social media), give yourself space where you don’t have to react to others’ emotions and where you can be alone to process your own. Schedule a regular therapy session. Find people with whom you can be 100% yourself.

Spiritual Rest:

Sign you need it: Feeling afloat or unanchored. Feeling a lack of purpose or fulfillment.

Rest to get: Engage in something greater than yourself. Consider adding prayer, meditation, or even volunteerism/community involvement into your routine.

Sensory Rest:

Sign you need it: Your senses feel overwhelmed. This can be due to bright lights or noisy places, too much screen time, too many people talking to you at once etc.

Rest to get: Intentional sensory deprivation. Close your eyes for a minute in the middle of the day. Put down the screens past a certain time. Try to get yourself to a quiet place with minimal sensory distractions and let yourself take deep breaths away from all the input.