April Letter

The Forgotten Inflation Hedge

Hi there!

I’ve been thinking a lot about inflation. Have you?

I just can’t get it out of my head that we, as an industry, are underestimating this thing.

Now, don’t get me wrong. I’m not a ‘hyperinflationista’ or ‘end the Fed’ type.

Nor do I think we should be making grand economic predictions. That is not our role, either.

I just think people, like our clients, are concerned. And, it is, indeed, concerning. To underappreciate this is its own sort of economic prediction, right?

Anyways, one thing I’ve noticed in my interactions with clients over the past six months is that they are overconcerned with their investment portfolio’s performance in the face of inflation. What’s new? As humans, we are always overly concerned with the vagaries of the present.

Yet, I also think that they are underappreciative of the most important inflation hedge on their balance sheet: Their home.

Check out this chart:

Wowza! Home prices are up nearly 20% year-over-year!

Maybe you knew this. Personally, I refresh Zillow’s estimate of my home every 30 seconds for a mark to market (kidding!).

But this is where the ‘comprehensive’ in ‘comprehensive financial planning’ comes into play. We go beyond the investment conversation.

Inflation is making me nervous, should I sell stocks or bonds?

Should I be making changes to my investment portfolio to protect against inflation?

Well, no.

No. Don’t do that.

But also, let’s look at your total balance sheet. Your house, for example, has greatly appreciated this past year.

In fact, beyond being your home, that is its role. Real estate protects our balance sheet against inflationary shocks.

Bonds also have their role. They protect against deflation and offer liquidity for shorter-term goals. Stocks allow you to profit from growth and innovation in the economy.

Each item in your financial plan has its place. Together, we designed it as such.

Your cause is righteous. Keep up the amazing work.

Photo by Muhamad Reza Junianto on Unsplash

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