In our contemporary society, there are concerns about the impact that inflation might have on their ability to reach their financial or life goals. While it may not be possible to avoid the effects of inflation completely, there are some things you may be able to do to reduce its sting without making drastic changes to your portfolio.
Consider adding some inflation-resistant diversifiers:
Though the rise in inflation may be troubling, investors who already have a well-diversified portfolio of traditional stocks and bonds may already have some degree of protection, as portfolios such as these have historically tended to grow even in periods of high inflation. “We still believe that a mix of stocks, real estate, and bonds can help investors experience growth while managing risk.
Always have a budget:
Experts will always advise people to make purchases based on budget; as consumers are likely to cut back on nonessential expenses. Consider what driving inflation is and see if you can shift what you’re spending your money on, so it has less of an impact. It may be wise to defer purchases of consumer goods that have been particularly affected of which have experienced double-digit year-over-year price increases.
Don’t get too comfortable With A Lot of Cash Within reach:
In times of volatility and uncertainty, it can be tempting to retreat from the market and reallocate some of your assets into a cash position. But in an inflationary environment, holding cash can be counterproductive. “It feels safe because the number in your account appears to be staying stable. But the longer it sits there, the lower your purchasing power can get. Look for solid assets you can put the cash to put a higher percentage of the cash into.
Re-Evaluate Your Emergency Fund
Some investors may want to always keep more cash handy in their emergency fund to ensure that the rising cost of living that comes with inflation is catered for when it arises. As much as it may not be wise to leave lots of investible assets in cash; it’s still important to have short-term liquidity needs.
It’s generally recommended that you set aside enough to cover 3 to 6 months’ worth of expenses. If you haven’t taken stock of how much your day-to-day expenses are really costing you, your emergency fund may not be ready when you need it most.
Reduce your tax drains:
Tax is one of the main drags on portfolio performance. The more tax-efficient you are, the better off you’re going to be; therefore look for more creative ways to drastically reduce tax payments.
Have a good financial plan
The best course of action is going to depend on your level of wealth and your stage of life. But having a good, robust financial plan can provide some comfort when the markets seem uncertain.” Avoid having so much cash hanging around you because, in the long run, it might result in diminished purchasing power.
