Inflation: Risks and Opportunities

Inflation’s having a moment. Not since the hideous late-70s and early-80s has this economic phenomenon grabbed so many headlines. Many may not now be bothered by inflation like they weren’t by ‘70s fashion, but that seemingly little bend to the far right of the graph below likely represents $100s of dollars to even the stingiest households in higher costs for everything from Clorox bleach to Nikes to gasoline.

As with most volatile things, especially those of an economic nature, inflation presents risks and opportunities. The primary risk revolves around the prospects of economic beings – people, companies, governments – earning at the same rate in the future but paying more for things. In economic parlance wages, earnings, and tax receipts stagnate while prices increase for the goods and services that families, companies, and municipalities buy. Of course, this risk never occurs for every actor in the economy at the same time and to the same degree. These disconnects present opportunities for those economic participants to benefit from the sorry souls forced to pay more for stuff in 2021 (and highly likely in 2022, 2023, 2024…) while, for whatever reason, they still earn the same paycheck they did in 2011:  YUCK!

This may seem all high-level and meaningless to many but avoiding the just some of the risks and taking advantage of only a few of the opportunities environments like the current one offer could make a monumental difference in future quality of life. For instance, if a family chose not to re-finance their mortgage over the past few years, they probably are in jeopardy of missing the opportunity to more than offset the higher costs of the gasoline required to get the folks back to the office, the kiddos to swim practice, and everyone to Nana and PopPop’s for Thanksgiving. Similarly, if the owner of your favorite burger joint or steakhouse freaked out and decided last week to buy forward all of his beef for the coming year because they think prices will escalate forever, get ready to either pay more for that burger or to find a new favorite restaurant with cheaper prices (if the cost of beef drops).

Investing in inflationary environments may prove even trickier. Too many bonds, the wrong equities, or none of one or the either asset classes, could set the earnings of a savings or retirement plan back a few years. Give Solyco Wealth a call, I think we can help:  (713) 444-3560.