5 Questions to Ask Your Financial Advisor About Inflation Now

5 Questions to Ask Your Financial Advisor About Inflation Now

Eurozone inflation rose to 10.7% in October from a year ago, the highest in the currency’s 23-year history. US inflation was 8.2% in September, still at its highest level in 40 decades. In the UK, the rise in the cost of living was 10.1% year-on-year in September. In Singapore, it was 7.5%.

Global prices began to rise during the COVID-19 pandemic, taking many economists by surprise as lockdowns disrupted supply chains. They increased further after the Russian invasion of Ukraine earlier this year and the sanctions which affected the supply of agricultural products and energy.

A strong dollar is worth more when exchanged for other currencies, making it cheaper for Americans to buy imported goods — and more expensive for foreign businesses to sell goods in the United States. Some analysts also say the strong dollar has, in some cases, exacerbated the headwinds facing the U.S. stock market this year.

Be realistic about your financial goals and be prepared to make tough decisions to achieve them.

With many economists predicting a recession in 2023, it’s time to take stock. Are you planning a winter vacation? Do you want to buy this costume or dress for the office party? Are you considering trading in your old clunker? Is it a good time to accept that dinner invitation at a restaurant that will cost you $100 for a meal?

According to an independent survey of nearly 4,000 workers published this week by online lending specialist LendingTree.

And now? Be realistic about your goals — and be prepared to make tough decisions to achieve them, said William Thompson, financial planner at Boston, Mass.-based Valor Wealth Partners. “That doesn’t mean we have to completely abandon our goals. It may take a little more work or a little more intentionality,” he said.

Here are five questions to ask financial advisors now:

1. Do I have a long term financial plan?

Jennifer Kang, financial planner and founder of JWK Financial in New York, said everyone should ask themselves, “Do I have a proper plan in place? That includes big decisions, including whether you intend to stay in your job, assessing your home-buying timeline and/or when you want to retire, she said.

There are things we can all do. Here are some strategic steps to help you keep your finances on track: reduce your debt, adjust your spending, curb impulse buying, build your emergency savings, talk to your landlord about rent, and avoid falling prey to debts for profit – settlement companies.

And some basics: “I earn X amount, I spend X amount and I save X amount. It’s me and I’m happy about it,” Kang said. “If you already have a plan in place, that shouldn’t change too much.” But revisit these questions if your income changes, if you lose or change jobs and/or if your mortgage/rent increases.

2. What is the impact of inflation on my cash flow?

What does inflation mean to you? It depends on your situation. Inflation is good if you have a fixed rate mortgage and are stuck at a low rate – your mortgage payments have just become cheaper in real terms. However, it’s bad if your landlord raises your rent and you face rising student debt and grocery prices.

Alex Borgardts, financial advisor and co-founder of Next Bloom Wealth in Kansas City, Mo., calls this your “personal inflation rate.” In other words, everyone’s relationship to rising prices is unique. If your energy bill is rising and you have few opportunities to save money on electricity, cut your spending elsewhere.

Inflation reduces your purchasing power. Because of this, your bank balance is worth less in “real terms” when adjusted for these higher prices, wrote Alonso Rodriguez Segarra, CEO of Coral Gables, Fla.-based Advise Financial in a recent column. So what you do with that money is more critical than it was two years ago.

3. How diversified is my portfolio?

How exposed is your portfolio to different sectors and markets, and how much have you invested domestically versus internationally? MarketWatch columnist Philip van Doorn suggests 27 stocks that can give you a more diversified portfolio than the S&P 500 — and that, he writes, is a key advantage right now.

Your risk tolerance is key: “2022 was a great time for people to take a step back and reanalyze their comfort with risk,” Borgardts said. “In good market years, it’s easy to get comfortable and not pay much attention. When we feel [the impact of] in more volatile markets, it’s easy to get emotional and make changes.

As of Tuesday’s close, the Dow Jones Industrial Average DJIA,
is down 10% or more than 3,600 points since the start of the year. Excessive inflation reduces the value of investors’ cash and encourages the Federal Reserve to fight inflation – with interest rate hikes – and this can weigh on stock and bond prices.

4. Do I have emergency savings?

Maintain an emergency fund accessible at all times, in the event of job loss or a medical emergency, Segarra added. Likewise, Borgardts said people should check with their financial planners about the amount of cash in their investment accounts. (Often investment managers will keep a small portion of the client’s portfolio in cash.)

The “savings surplus” — the amount households have saved compared to what they would have saved without the pandemic — was $1.7 trillion in mid-2022. But it doesn’t affect all Americans equally: About $1.35 trillion of that figure was held by the top and third income quartiles. In the second quarter of 2021, the savings surplus was $2.26 trillion.

Meanwhile, the personal savings rate – savings as a percentage of disposable income – fell to 3.3% in the third quarter from 3.4% in the previous quarter, the government said on Thursday, the lowest level since the Great Recession. Economists haven’t fully compiled the impact of the pandemic on savings, but these numbers certainly bring the issue to the fore.

5. Should I change course now or later?

If you don’t qualify for President Biden’s federal student loan forgiveness, check to see if you can afford to repay your student loans now, Kang said. As interest rates rise, variable rate loan repayments will also rise. For this reason, now is a good time to pay off personal loans and unpaid debts on credit cards.

But Thompson advises against any sudden movement. “You can’t necessarily stay with the current allocation, but don’t exit completely,” he told MarketWatch. Ultimately, playing the long game is key to success in the stock market, Kang added. And that means making no changes based on fear.

Sometimes the best action is no action. Weathering the bear market and economic uncertainty by not checking your wallet every five minutes can be a blessing. “Doing nothing is not a bad thing,” Kang said. “Just because something is happening doesn’t necessarily mean you have to make changes.”

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