Pandemic-induced disruptions continue to ripple through, but not cripple, our lives and economy.  Covid, we are being assured, is on its way to becoming a manageable “endemic.”  Thus, we are adopting an increasingly stable view of our lives, individually and collectively.  

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With each advance in vaccines, faith in modern medicine is vindicated. Another positive year in financial markets points to the resiliency within many, but sadly not all, corners of the economy or reaches of our society. A brightening 2021 validates the stabilizing power of government intervention in times of crisis.   

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But then there’s inflation – up 7% last year, the biggest change since 1981.   Opinions abound as to whether this is “transitory” or a stubborn sneak-thief that will outlast the pandemic. Inflation fears, of course, make for an easy headline that can obscure another fantastic year for investors. 

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Baby Boomers, especially, are fearful of reliving the double-digit inflation endured in the 1970s.  To be sure, runaway inflation could be devastating for those on fixed income and perhaps a challenge for long-term investors.  But in any event, we’re not there.  

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Today’s circumstances are significantly different.  Computerization has been a chief inflation-fighter over the past few decades.  Globalization also holds down the cost of goods via fueling permanent free-trade debates.   To put these two inflation-dampers in perspective, for every domestic manufacturing job that has been “exported,” automation has eliminated five more.  In the process, we benefit from things made faster, better, and cheaper. 

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Also, we are not going to see a replay of the “oil shocks” imposed by OPEC decades ago.  America has since attained a degree of energy security that everyone will be better appreciated once gas comes down from $5 per gallon, that is, when domestic production is restored to pre-Covid levels. 

From Machine Guns to Washing Machines

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To gauge the present inflation spike, the better comparison takes us back to the end of World War II.  Overnight, the post-war economy shifted from machine guns to washing machines.   With it came a spike in inflation.

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Millions of returning veterans, for instance, released pent-up demand for domestic goods.  On the other hand, available supply had been limited by wartime edicts - production limits, price controls, and ration stamps.  From 1946 to 1948, inflation took off.  In 1949 and 1950, inflation was practically zero.   

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In this historical example, supply and demand reached an equilibrium – the kinks in the system apparently had worked themselves out.  Today, therefore, should we expect a similar taming of inflation once Covid is behind us?  We say “yes.” 

 

A recent survey of 900 global CEOs rendered a relatively positive forecast regarding inflation. About 69% of those surveyed believe “elevated pricing pressure” will last for another year-and-half or less.  The other 31% of those surveyed expect high inflation beyond next year.

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Taken together, this corporate reading of tea leaves ranks inflation as a moderate concern ranked among many: labor shortages, supply-chain interruptions, and, less and less so, Covid-19 (source: The Conference Board).  

Inflation Concerns and Your Financial Plan

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Every financial plan and investment strategy must anticipate inflation.  After all, inflation erodes purchasing power if one’s nest egg can’t keep up with inflation.  

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With interactive planning software, we can quickly illustrate any number of “what if” scenarios, including different inflation and investment performance assumptions.  (Our firm has typically assumed inflation of 3.1%.)  At the same time, we can review additional adjustments to your portfolio in the anticipation of interest rate changes.

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So, if inflation or any financial planning topic has you concerned, a little or a lot, let’s talk and see how it should be factored into your situation.  We appreciate this opportunity to be of service.

New for 2022, Introducing Advizr

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We are constantly investing in ways to enhance our client’s financial planning experience, that is why we are introducing our new and improved client portal - Advizr. 

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Advizr, not only integrates real-time portfolio data from Schwab but also allows for integration with your accounts held at other institutions like those accounts held with your employer. We've also included a secure digital document storage platform as an alternative to Google Drive. And most importantly, we also now have an integration that includes details from your financial plan. 

 

Our financial plans are designed to change as often the financial lives of our client's change, so we anticipate that information we’ve collected in the past might now require some updating. We encourage every client to take a few minutes to review their financial plan and to let us know of any updates.

If your goals have changed or you are experiencing or anticipate changes in your income, spending, or assets let us know. At any time of course you're welcome to schedule a 1:1 review of your financial plan so please email rafael@hankewealth.com for available meeting times.

 

If it’s been a while since you've logged into your client portal, it’s likely that your username or password will need to be reset.  This only takes us a few minutes to remedy, so please give us a call at 415-781-6300. 

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And finally, we are seeking your feedback so please let us know of any hiccups you experience and of any suggestions for improvement. As always, we welcome your questions and concerns and look forward to hearing from you.