Will Inflationary Pressure Go Away Show 51

I’ve never been one that enjoyed having my picture taken. Mallory, my wife, loves photography and even taught it when she was a schoolteacher.
In our six years of marriage, we’ve had three photographers take family pictures and when we were engaged, we had another photographer take photos. You would think we were famous or something. Oh, the things we do for love.
Back in 2018, when we first went to Destin, Florida, for vacation, we had pictures taken, and we’ve enjoyed them so much that we had the lady take pictures for us again.
Last time we were there in September, so the summer heat was still present. We took pictures near dusk and it was fairly humid out. I had the bright idea that we should take them in the morning this time so it would not be as hot. I didn’t realize that meant we would be getting up at 4:00 AM to make it happen! But I think it worked out better this way. I was a little less sweaty!
It was only a short while ago that having “a” picture of someone you loved was a huge deal, but now we have thousands of pictures on our phones. When I slow down to think about it, it has a way of helping me not complain about posing for more pictures.
It makes me wonder what future generations will think when they are able to see every day of a person’s life. It’s probably not much of a stretch to say that we have a picture from every day of Amelia’s life.
Some problems are easy to see. They’re like a storm in the distance. Everything may be calm now, but in the distance, you can see storm clouds brewing. When the government began sending stimulus checks out last year, it was easy for some people to see how this was probably going to cause inflation to be a greater risk.
The government has also been providing liquidity to the economy by buying billions of dollars of government bonds per month. This is adding to the inflationary pressure. The Federal Reserve is faced with a challenging dilemma.
Does the Federal Reserve attempt to raise interest rates? Or does it continue to allow inflationary pressure to mount? If rates go up that may cause major gyrations in the stock market, and lending may decrease. If people aren’t buying homes or cars or boats as much that’s means manufactures may lay people off. And one of the Federal Reserve stated objectives is to have maximum employment. This lessens the chances that the Federal Reserve will increase rates.
The next thing the government could do is slow down its bond buying program, and that may cause stock market volatility as well. It appears that the Federal Reserve is between a rock and a hard place, because the outcome probably isn’t going to be favorable either way.
This is why it’s important to have a safety net around your portfolio. If you have a portion of your money that you are guaranteed to not lose in market downturns that may allow you to take greater risk with the other portion of your finances.
We know that being invested in the stock market is on of the best ways to keep up with inflationary pressure. As inflation rises, the stock market tends to increase. That’s why it’s important to be invested in the market with a portion of your money.
But we want to be diversified so that inflation risks, legislative risks, and market risks are mitigated against. Creating a balanced approach where a portion of your money is prudently invested in the market with specific goals around why it’s invested the way it is the first step. Secondly, having a portion of your assets that cannot go down in value is critical as we approach retirement.
Why is it critically important?
Because when the market is down, we want to avoid taking income out of our stock market investments. Taking distributions in a down market cuts into our principal and may cause us to run out of money quicker than we otherwise would have.
When the market is down, we would be better off taking distributions out of our guaranteed never to lose portion of our portfolio. This may allow us to stretch our money further.
No matter what amount of money you have, most people want to have as much of it as possible for as long as possible, and this is one of the strategies I’ve found that helps facilitate that objective.
If you would like to discuss this further or have questions, reply to this email or call our office at 864.641.7955.
Until next week,
David C. Treece,
Financial Advisor
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