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Blog #2
INFLATION'S ON THE RADAR AGAIN
By Tom McAllister, CFP™
"Price Index Soars 1.1% In June", the headline informs us, "the highest monthly increase since right after Hurricane Katrina." "Over the past twelve months, consumer prices are up 5%, the highest one-year increase since the early 1990's", the reports go on to say. The Labor Department adds that wholesale prices are rising by the highest annual rate in decades, over 7%!
News like this, expressed in percentages and "est" suffixes ("highest", "greatest", "sharpest") could easily induce panic in some people. Viewed from my own perspective of nearly a half century career in financial planning, the statistics are much less scary. I can remember back to 1981 and 1982 - the news then talked of inflation being over 10%, double what it is today.
Don’t get me wrong, inflation, even 5% inflation, is no lightweight of an issue, especially when it's combined with other economic woes such as the current deep drop in real estate values. Long term, high inflation can pose a threat to the value of our dollar and will affect how competitive we are in international trading of goods. But right now, you're probably more concerned about the pinch you're feeling at pumps and grocery shelves.
What can you do about protecting yourself from the worst of inflation's effects? Some common-sense stuff to start - you know, drive less, vacation close to home, pack lunches, forgo front row seats, Starbucks, and gourmet eateries (try Trivial Pursuits and pitch-ins with friends instead). You've heard it before - Spend Less, Save More. Well, now's when, that’s my advice.
On the investment side, stay in stocks, hold real estate, avoid certificates of deposit, long term bonds and the funds that hold them. Above all, don't panic, no matter what the headlines say! Remember that all the other investors, including the money managers, have read the same headlines you have, and most of the bad news is probably already reflected in stock prices.
Don't be too quick to take that buyout your employer's offering, even if it seems a good deal on the surface. A full-time job, if you are fortunate enough to keep one, can mean many more dollars into your 401k or other retirement plan, and can provide health and disability insurance. Retirement may need to be put on hold while you take time to take charge. Own your own business? Operate lean as can be! Get advice on saving taxes, protect your credit and your identity, and seek out a financial planner to coordinate all the moving parts of your plan -savings, investments, insurance, retirement planning, college savings, and eldercare.
Inflation may be on the radar, but just remember who's in charge here - YOU!
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