Inflation hasn’t been a big concern over the last 40+ years. It has returned and was initially termed by many as ‘transitory’ meaning it was expected to be short lived. Anyone who has been to the grocery store, the gas station, paid a utility bill or purchased goods or services for their business is realizing that we are past the short term phase.
Inflation is measured by the Consumer Price Index (CPI) and the annual inflation rate is soaring. It recently has been marking its highest levels since the late 1970’s and early 1980’s. The CPI is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. A convergence of US policy decisions, spotty supply and increased demand have resulted in a severe broad based surge in consumer prices. When this happens it erodes the purchasing power of your household income. According to the St. Louis Federal Reserve, a gallon of milk in 1997 was $2.63. Twenty-five years later, that exact same product is now $3.91. Over that same time period, a gallon of gas went from $1.29 to $3.80. That’s inflation!
What can you do to help offset the impact of inflation in your financial situation? According to a Nationwide survey, here are some things Americans have been doing the last 12 months to fight inflation.
Drive less – if this option exists- try carpooling, plan ahead when running errands by making fewer trips and fewer stops, and work remotely more often.
Relying more on credit cards – the survey tells us more Americans are doing this but the advisors at Kletschke Wealth Management Group believe this is not a good inflation strategy and will set you up for a great deal of financial pain later.
Look for a better paying job – The employment situation in the US was much difference in the late 70’s and early 80’s than it is today. Back then the unemployment rate was high which added to the sting of high inflation. Today that’s not the case; everywhere I look I see help wanted ads with impressive starting wages and benefits.
Ask for a raise at work –many companies have been proactive in raising wages and benefits to keep good workers. If you haven’t seen that in your job, advocate for yourself and ask.
Also cited in the survey is that Americans are buying stocks. Investing in stocks allows you to potentially keep up with inflation or ideally, outpace it over the long haul. At Kletschke Wealth Management Group. We believe to combat inflation, a proactive investment approach with a high quality, well diversified dividend portfolio can help offset the recent spike in the cost of goods and services. We believe it is important to have a strategy to preserve purchasing power by generating income at or above the rate of inflation for those that need income and managing inflation uncertainty by owning companies with staying power. Moderate dividend growth often signifies companies with staying power.
The role of dividends has been expanding in the design of portfolios. Capital appreciation potential from common stock ownership has been the focus of investors since 2010. We know there are market cycles where these types of companies excel. We also know that there are cycles where dividend paying companies outperform growth companies. In today’s market environment, we believe dividends can be highly useful and contribute to a portfolio’s total return. Some companies distribute a meaningful percentage of their profits back to shareholders in the form of dividend payments and that can be attractive especially during flat or down markets. In an interest rate environment that can be “lower for longer,” where future economic growth may be slower and bond yields may remain historically low, dividend payments will likely take on greater importance as a source of both current income and future total returns.
Contact Kim, Korey, or Tyler at the Kletschke Wealth Management Group and let us show you how we can help!