Inflation Is Here. Are You Ready? Show 59

Inflation simply defined is when our money buys less than it used to buy. Conventional wisdom says we need equity exposure to keep up with inflation, and I don’t disagree in principle. But where it gets tricky is when we have an over exposure to stock market investments and a correction happens. A down stock market portfolio plus biting inflation is like a one-two punch to knock you out. Some people will have a hard time getting back in the fight after that.

This is why we recommend having a safety net of investments that cannot lose value. These are our fallback positions when times get tough in the economy, because taking distributions off our stock market portfolio in a down market may cause us to run out of money even quicker.

I don’t mean to harp on stock market corrections or preparing for the worst, but in retirement major losses to your portfolio matter a lot in whether you’ll financially make it or not. What’s worse is that the government has figured out how to lessen the impact of stock market corrections buy using quantitative easing. The problem is that this ultimately devalues the dollar and causes inflation.

Quantitative easing (QE) is when the government buys securities and increases the money supply to incentivize lending and investing. It increases the government’s balance sheet and the government is essentially creating money to facilitate this. This causes inflation.

 It’s a double edged sword. Should the government allow the markets to naturally correct and create an unknown amount of financial pain for people or do they use QE to stabilize markets today but create a potential inflation problem later?

These issues necessitate a new approach of active portfolio management. Last week, I explained our methodology for using algorithmic models to mortgage risk in our equity positions. What that means is that we are not riding the Dow to its low, but rather through computer programs going in and out of investments to mitigate against major losses.

We have a unique approached to portfolio management that you’ll be hard pressed to find elsewhere. When you’re ready to experience active portfolio management with less fees and a comprehensive approach to your whole paradigm, please let us know. As always you can reach us by calling 864.641.7955.

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