Is It Possible to Inflation-Proof Your Retirement Savings?
The combination of longer life expectancies and the devaluation of the United States dollar has some pre-retirees and retirees worried about whether their retirement savings will suffice. If everything goes as planned, your golden years will last several decades. Our full-cycle comprehensive financial planning specialists in Canton, OH are here to help inflation-proof your savings across those decades, empowering you to live your best life.
Surefire Investment Returns That Offset Inflation
Though no stock, ETF, or mutual fund is guaranteed to provide a positive return, experienced investors will testify that dividends are nearly a surefire guarantee to be paid. Take a close look at the history of dividend stocks and you’ll find they almost always pay out the anticipated dividend. Though there is a risk that the stock itself will stagnate or decline, this risk may be largely offset by the dividend.
Real estate investment trusts, referred to as REITs, that pay dividends will help offset the devaluation of your savings and investment dollars as inflation continues. Historical trends show REIT dividend income tends to increase in unison with inflation. REITs finance or own a comprehensive portfolio of real estate that generates income.
Examples of such portfolio holdings include retail stores, office buildings, hotels, warehouses, apartment complexes, and other properties. Investors looking to inflation-proof their retirement savings will be happy to know the National Association of Real Estate Investment Trusts reports REIT dividends have surpassed the rate of inflation in 18 of the previous 20 years.
Diversify Your Investment Holdings With Real Estate and Bonds
Investments in commodities and real estate are also likely to generate returns that help mitigate financial losses stemming from inflation. As experienced investors are quick to point out, real estate appreciates across posterity. Though there is always the potential for real estate in blazing hot markets to cool off after the market temporarily peaks, real estate prices always bounce back to higher levels. Real estate is a solid investment, largely because it is impossible to build more land and the population continues to grow.
Certain Bonds are another surefire investment amidst ongoing inflation. In particular, our investment advisors in Canton, OH highlight the merits of TIPS bonds. TIPS is an acronym that stands for treasury inflation-protected securities. This type of treasury bond safeguards your money against inflation. Although TIPS treasury bonds will not provide dollar-for-dollar returns that 100% offset inflation, they eliminate nearly the entirety of devaluation stemming from inflation, including dreaded hyperinflation.
The principal invested in TIPS moves up and down in accordance with the rate of inflation. However, this rate is not adjusted on a weekly or monthly basis. Rather, the inflation rate in the context of TIPS is adjusted once every six months. It is also worth noting that the TIPS coupon rate is set in stone, meaning TIPS investors are paid in accordance with the inflation-adjusted principal. TIPS investors are provided with whichever is larger between the adjusted principal and the original principal at the time of maturity.
The challenge lies in determining the specific percentage of your investing dollars to allocate toward such a fixed-income holding. Fee-only fiduciaries have long advised clients to maintain around 40% of their portfolio in bonds. However, most financial advisors are now leaning toward allocating a smaller percentage of investing dollars in bonds, shifting a larger percentage to growth stocks, ETFs, mutual funds, real estate, and other investment vehicles.
The specific percentage of your portfolio allocated to bonds will be determined by your age, your target date for retirement, your unique risk tolerance, and additional factors.
Our comprehensive financial planning specialists at McGervey Wealth Management will carefully review the idiosyncrasies of your current financial situation as well as your investing goals, helping you strategically allocate your investing dollars to inflation-proof your financial nest egg as best as possible.
Proactively Align Your Investments With Inflation
Full-cycle investing accounts for inflation as well as the prospect of hyperinflation, stagflation, reflation, and even deflation. Instead of attempting to analyze the stock market and economy on a daily basis, lean on the financial planning team at McGervey Wealth Management to do the work for you. We study the economy here in the U.S., the global economy, anticipated inflation, the stock market, and other investment opportunities so you don’t have to.
Meet with our full-cycle investment specialists and we will align your money to maintain pace with inflation. Our full-cycle investing strategy even has the potential to help you outpace inflation in 2022 and beyond.
The battle against inflation should include the series I savings bond. Also known as the I-Bond, this bond is fully guaranteed by the federal government, ultimately helping you protect your hard-earned money against ever-increasing inflation. The I-Bond credits your account with a specific interest rate that includes the annual inflation rate from the prior half-year. The value of your account will not decrease in the event that prices decline.
Our investment advisors also highlight the merits of corporate inflation-protected securities, also referred to as CIPS. CIPS aren’t much different from TIPS but for their placement in corporate bonds. Furthermore, CIPS provide a comparably high yield that includes a fixed payout along with a variable rate. The only flaw with CIPS is they are not fully guaranteed by the United States government.
At McGervey Wealth Management, we get to know you on a personal level and keep things simple, using common language everyone can understand. To learn more about our full-cycle portfolio management techniques and how higher inflation might affect your retirement planning contact us today.