High Net Worth Financial Planning for Inflationary Times

High Net Worth Financial Planning for Inflationary Times

28 Sep 2022

High inflation can be a devastating economic force that wreaks havoc on even accomplished wealth. However, it does not have to be a death sentence for your net worth. Instead, it can offer an opportunity to proactively protect and potentially grow your wealth. Professionals handling high net worth financial planning in Akron-Canton, Ohio often know how.

When inflation is high and unpredictable, it is important to create a budget that takes your lifestyle and financial future needs into consideration. With this and other shrewd comprehensive financial planning strategies, you can navigate the uncertainty of high inflation while increasing your savings rates and maintaining or growing your investments over time.

What Is High Inflation?

Fundamentally, inflation is a sustained increase in the cost of goods and services in an economy over a period of time. When this happens, more money is needed to purchase the same amount of goods and services than was necessary when things were less expensive. The U.S. Bureau of Labor Statistics tracks inflation through the Consumer Price Index (CPI).

Through cause-and-effect, inflationary periods raise the cost of living. For example, if your paycheck remains $70,000, but your rent increases from $4,500 to $6,000 per month, it becomes more expensive for you to live in that apartment than it was last year. 

This is why indices like the CPI (Consumer Price Index) and PCE (Personal Consumption Expenditures) are integral to calculating inflation rates: they consider most varieties of goods and services that consumers buy on a regular basis in order to get an accurate picture of what people are paying out of their pockets every month.

What Commonly Causes High Inflation?

There are many reasons why inflation can get out of control. In the United States, many of these reasons can be traced back to government spending. Perhaps the most basic cause is when a government prints money to cover its expenses and debts: The more money they print, the less valuable each unit of currency becomes (relative to its purchasing power compared with other goods and services).

As long as there is no limit on what a government can spend on its programs, inflation will occur until all available resources are consumed by them. At that point, even those programs may collapse under their own weight—unless more resources are found somewhere else (e.g., through taxation).

Regardless of its roots, today’s inflation must be anticipated and dealt with. Even the very affluent face possibly becoming less so without regular reviews of their savings and portfolio. Where investing is largely a waiting game, blind set-it-and-forget-it approaches can have far more serious consequences now. 

What follows is not a list of one-size-fits-all approaches. Nevertheless, rather than do nothing, consider asking your wealth manager about the following.

1. Put Investments in Money Market Funds or Other Low-Risk Stocks.

The first thing to consider when investing your money is the short-term nature of the investment. If you cannot access your money for at least five years, a money market fund might be a good place for it. Money market funds are low-risk investments that pay interest and allow investors to easily withdraw their cash at any time without penalty.

The caveat to this is that money market funds are not FDIC-insured. They are not guaranteed by any government entity, either. As a result, they are subject to risk, including the possible loss of principal.

2. Plan for the Unexpected by Saving for Emergencies and Establishing a Will and Trust(s).

As inflation increases, you should plan for the unexpected. This may include saving a certain amount of money each month to cover your bills in case you lose your job or other emergency expenses. If you do not already have a will and trust, now is the time to take care of it.

Inflation can also affect investments such as stocks, mutual funds, and bonds; however, these investments typically offer income that is less sensitive to inflation than other assets such as real estate or art collections (which may actually increase in value due to inflation).


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3. Remember Retirement Planning As You Focus on Inflation

Fixed-rate plans may not be the best way to go if inflation should continue (even dwindling) for decades. If your goal is to hedge against inflation by protecting your principal balance, consider a variable rate plan. These can lower the principal value of your account when interest rates rise—but they can also increase it if higher interest rates occur later.

A hybrid plan may help to preserve more of your principal balance than a typical variable rate plan. It can afford some protection against high inflation rates over time, as well. There are generally two possible options: 

  1. Higher interest rates (as long as you can maintain at least 80 percent loan-to-value; LTV coverage ratio).
  2. Lower monthly payments are adjusted annually (based on market conditions and LTV ratios). These often allow additional adjustments after certain periods have passed.

4. Take Advantage of Fixed Interest Rates (Before They Increase)

Investing in fixed-interest investments can potentially protect against inflation and possibly make your money grow faster. The best options for this are bonds (which are very similar to CDs), savings accounts with FDIC backing, or certificates of deposit (CDs). The latter may offer higher rates than traditional savings accounts due to the fact that they are insured by the federal government.

So, even though they lock in your cash for a set period of time (usually six months to long-term), they are worth looking into for extra protection from inflationary conditions.

5. Insure Your Irreplaceable Items.

Insurance can protect you against the loss of irreplaceable items, such as jewelry and art, due to theft or fire. It can also provide protection against lawsuits (should, for example, you become incapacitated or killed in a car accident). 

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6. Buy Gold, Silver, Oil, Agricultural Assets, and Other Commodities as a Hedge

Commodities such as gold, silver, oil, and other natural resources can provide a good hedge against inflation. These are generally not a good investment in low inflationary times because they do not produce much income. 

With that said, they make sense as investments as interest rates rise—and the value of money is dropping rapidly while the price of goods and services continues rising.

7. Seek a Professional Advantage

High inflation does not have to be a bad thing for investors. It can either help or hurt you, depending on the investment advisor and situation. Whether any of us like it or not, this is a reality that we need to face in today’s world (and possibly for many years yet). 

However, we can still protect our assets by establishing and following carefully-devised investment strategies. McGervey Wealth Management has ample experience providing these (in pursuit of full-cycle investing). As a fiduciary financial advisor in Akron Canton, OH, we have a host of other services, such as estate planning, for high-net-worth individuals, as well. Contact us today.

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More About the Author: Michael McGervey

Michael serves as a resource to executives and business owners, assisting them in making proactive and informed personal financial decisions. He is also a member of McGervey Wealth Management’s Investment Committee and is responsible for investment research as well as the execution of the firm’s portfolio strategies.