Understanding and Managing  “Sticky” Inflation

Inflation, often seen as the subtle thief of purchasing power, has taken a more prominent and “sticky” role in our economic landscape, especially noticeable to retirees who may be on a fixed income. Understanding the dynamics of sticky inflation—where high prices persist over time despite economic shifts—is crucial for preserving the value of retirement portfolios.

Historical Context

Inflation isn’t a new phenomenon. The 1970s saw what was known as the Great Inflation, a time when price levels soared and remained high, burdened by energy crises and loose monetary policies. Recently, despite fluctuations in economic activity, we’ve witnessed a similar trend in which inflation rates have remained above the Federal Reserve’s comfort zone of 2%. After peaking at around 9% in recent years, inflation rates have moderated but are still above historical averages. This new norm is far from the low-inflation environment retirees might have enjoyed over the past two decades.

Practical Strategies for Navigating Sticky Inflation

Investment Diversification: To help counteract inflation, we believe diversifying investments remains a key strategy. Stocks have historically outpaced inflation and should form a core component of a retiree’s portfolio. Investments in real estate, commodities, and infrastructure can also help offer additional protection against inflation. These assets typically appreciate when general price levels increase.

Inflation-Protected Securities: Consider incorporating Treasury Inflation-Protected Securities (TIPS) and other inflation-linked investments that adjust in response to inflation, directly protecting against the erosion of purchasing power.

Spending and Withdrawal Strategies: Manage withdrawal rates carefully to avoid depleting investment portfolios. Retirees should plan for longer-term spending needs, adjust withdrawal rates based on inflation trends, and modify personal spending requirements if needed.

Regular Financial Reviews: Assess financial strategies with your financial advisor. This includes revisiting asset allocations, predicted future expenses, and retirement goals.

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For retirees managing significant assets, the current economic backdrop marked by sticky inflation necessitates vigilant and strategic financial planning. At Savant, our advisors understand that diversifying investments, incorporating inflation-protected securities, and regularly revising financial strategies are essential for protecting an investor’s purchasing power. Additionally, we are dedicated to helping investors not only navigate known challenges such as inflation, but also the unknown and unexpected challenges that may arise. We believe engaging with knowledgeable financial advisors is more crucial than ever as strategies evolve in response to both economic conditions and personal financial goals.

This is intended for informational purposes only and should not be construed as personalized investment advice. Please consult your investment professional(s) regarding your unique situation.

Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments and/or investment strategies recommended and/or undertaken by Savant, or any non-investment related content, will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. All investment strategies have the potential for profit or loss. Asset allocation and diversification do not ensure or guarantee better performance and cannot eliminate the risk of investment losses.

Savant is neither a law firm nor a certified public accounting firm, and no portion of its services should be construed as legal or accounting advice. Please refer to our Form ADV Part 2 for additional disclosures regarding Savant and its practices.

Chip Kalousek Senior Investment Strategist / Client Advisor CFA®

A seasoned investment professional dedicated to client relationships and financial education, Chip leads Savant’s investment content creation and strategic initiatives while providing tailored guidance to help empower clients to pursue their unique goals.