The spotlight continues to shine brightly on increasing prices.  From big ticket purchases like a home to everyday shopping at the grocery store, stuff costs more.  What we need to recognize is that it will take time for the data to arrive to illustrate prices are in fact declining.  There is no secret sauce for the Fed to apply to get prices lower today.  Patience is needed in times like these as costs cannot stay elevated forever.  Lower prices could be a couple months away, it could be early next year, could be longer, or maybe it’s happening now?

What matters is that prices do come back down to earth so we may continue to spend on the things we need and want.  We’re a consumption-based economy.  We like to spend, we’re really good at it, and spending is more fun when prices are lower.

This pretty much sums up where we stand at the moment.  The financial markets aren’t happy about everything costing more and this uncertainty has pulled down values on all investments.  Nothing has gone unblemished.  As an investor, there are steps to be taken now that may allow you to make the most of what you have regardless of elevated prices.  Here are some things I’m thinking about.

Equities, also known as companies, come in all sizes and flavors like Baskin & Robbins ice cream.  Some companies pay dividends which often go unnoticed and maybe unappreciated.  Dividends work best when they are reinvested back into your account.  By reinvesting dividends you’re buying more companies at currently reduced prices.  This allows you to hedge rising costs overtime as it’s both dividends and company growth helping your monies stay relevant in the long run.  What’s the percentage of companies you own versus other investments like fixed income?

Most employer retirement plans offer some type of lifecycle fund that targets a future year you may retire in.  These funds work by shrinking the percentage of companies you own each year and increasing the amount of fixed income investments in your account.  All of this takes place automatically inside the fund based on your selected year.  It may be a surprise as you get closer to your date to see most investments in cash and fixed income.  Today’s investors aren’t looking for a lump sum of capital in year one of retirement as much as they are looking for sustainable annual income.  What you own does make a difference in how long it may last.  This is an opportunity to review the funds you’ve selected in your retirement plan.  Do they support your desired timeline?

The cost to owning equities, in and outside of retirement plans, includes accepting their up/down price movement.  This is known as volatility but often confused as risk.  Fixed income is safer in the sense that prices don’t move as dramatically as some company prices do.  That may feel great in uncertain times like today but comes at a steep cost.  That’s the inability of keeping pace with rising costs over a three-decade retirement span.  Relevant purchasing power is vital in your 60s as much as it is in your 80s.  Do you own various sized companies here in the US and abroad?

Automated investment purchases in your employer retirement plan work well.  Before your compensation is deposited into your checking account, a percentage is directed to investments.  This same approach works equally as well outside of your retirement plan.  Setting up automated contributions to an after-tax investment account makes a significant impact on what’s available one day.  The key is revisiting the amount you invest and increasing that as cash flow allows.  How much are you investing each month beyond your employer supplied plan?

Holding cash is an important complement to investing.  It should be the foundation before you begin buying companies.  This allows you to avoid reacting when surprises happen by having enough buffer to lean on.  Unfortunately, owning cash is boring as it just sits there earning next to nothing.  It’s tempting to own less and put more of your money to work in owning equities.  This works right up to the point that it doesn’t.  It’s always a return of your cash (not on it) that matters most to investors as their wealth expands.  Are your cash reserves sufficient or do they need attention?

If you’d like to learn more about investing, cash reserves, and creating a plan to manage it all, reach out to us.  More reading on these topics may be found below:

Ready, set, plan
Mistakes with cash
Rethinking fixed income

Advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Flowerstone Financial are not affiliated.

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