5 questions to ask your financial adviser right now about inflation

Eurozone inflation rose to 10.7% in October from a year ago, the highest in the currency’s 23-year history. US inflation was 8.2% in September, still hovering at a 40-decade high. In the UK, the rise in the cost of living was 10.1% year-on-year in September. In Singapore it was 7.5%.

Global prices began to rise during the COVID-19 pandemic, surprising many economists as lockdowns disrupted supply chains. They increased further after Russia invaded Ukraine earlier this year, and sanctions that adversely affected the supply of agricultural products and energy.

A strong dollar is worth more when exchanged for other currencies, making it cheaper for Americans to buy imported goods – and more expensive for foreign companies to sell goods to the U.S. Some analysts also say the strong dollar has in some cases existing headwinds facing the US stock market this year.

Be realistic about your financial goals – and be prepared to make tough decisions to achieve them.

With many economists predicting a recession in 2023, it’s time to stock up. Planning on a winter vacation? Want to buy that suit or dress for the office holiday party? Thinking of trading in your old jalopy? Is this a good time to accept that dinner invitation to a restaurant that will cost you $100 for one meal?

The share of workers who say they are living paycheck to paycheck in 2022 has risen among middle- to high-income earners — 63% and 49%, respectively — from 57% and 38%, respectively, a year ago, according to an independent survey of nearly 4,000 workers released this week by online loan specialist LendingTree.

What now? Be realistic about your goals — and be prepared to make tough decisions to achieve them, said William Thompson, a financial planner at Valor Wealth Partners based in Boston, Massachusetts. “This does not mean that we should abandon our goals completely. It just might take a little more work or a little more intent,” he said.

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Here are five questions to ask financial advisors now:

1. Do I have a long-term financial plan?

Jennifer Kang, financial planner and founder of JWK Financial in New York, said everyone should ask, “Do I have a proper plan in place?” That includes big decisions, including whether you plan to stay in your job, assessing your timeline for buying a home and/or when you want to retire, she said.

There are things we can all do. Here are some strategic steps to help keep your finances on track: get rid of debt, fine-tune your spending, curb impulse purchases, build your emergency savings, talk to your landlord about rent and avoid getting ripped off by lucrative debt. -settlement companies.

And some basics: “I make X amount, I spend X amount and I save X amount. That’s me and I’m happy with that,” Kang said. “If you already had a plan in place, it doesn’t change too much.” But review these questions if your income changes, if you lose or change jobs, and/or if your mortgage/rent goes up.

2. How does inflation affect my cash flow?

What does inflation mean to you? It depends on your circumstances. Inflation is good if you’re on a fixed rate mortgage and locked in at a low rate – your mortgage repayments just got cheaper in real terms. However, it’s bad when your landlord raises your rent, and you face rising student debt and grocery prices.

Alex Borgardts, financial adviser and co-founder of Next Bloom Wealth in Kansas City, Mo., calls it your “personal inflation rate.” That is, everyone’s relationship to rising prices is unique. If your energy bill rises, and you have little opportunity to save money on electricity, cut expenses elsewhere.

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Inflation shrinks your purchasing power. For that reason, your bank balance is worth less in “real terms” when adjusted for those higher prices, Alonso Rodriguez Segarra, CEO of Advise Financial based in Coral Gables, Fla., wrote in a recent column. So what you do with that money is more critical than two years ago.

3. How diversified is my portfolio?

How much exposure does your portfolio have to different sectors and markets, and how much have you invested domestically versus internationally? MarketWatch columnist Philip van Doorn suggests 27 stocks that can give you a more diversified portfolio than the S&P 500 — and that, he writes, is an important advantage right now.

Your tolerance for risk is key: “2022 was a great time for people to take a step back and reanalyze their comfort with risk,” Borgardts said. “During good market years it’s easy to get complacent and not pay close attention. When we feel [the impact of] more volatile markets, it is easy to get emotional and make changes.”

As of Tuesday’s close, the Dow Jones Industrial Average DJIA,
is down 10% or more than 3,600 points so far this year. Excessive inflation reduces the value of investors’ cash, prompting the Federal Reserve to fight inflation — with interest rate hikes — and that can weigh on both stock and bond prices.

4. Do I have any emergency savings?

Maintain an emergency fund that can be accessed at a moment’s notice, in case of job loss or a medical emergency, Segarra added. Similarly, Borgardts said people should check with their financial planners about the amount of cash in their investment accounts. (Often, investment managers will hold a small portion of the client’s portfolio in cash.)

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“Excess savings” — the amount households saved compared to what they would have saved if not for the pandemic — was $1.7 trillion in mid-2022. But it doesn’t affect all Americans equally: about $1.35 trillion of that figure was held by the top and third income quartiles. In the second quarter of 2021, excess savings were $2.26 trillion.

Meanwhile, the personal savings rate – savings as a percentage of disposable income – fell to 3.3% in the third quarter from 3.4% in the previous quarter, the government said Thursday, the lowest level since the Great Recession. Economists haven’t fully tabulated the pandemic’s impact on savings, but these numbers certainly put the issue front and center.

5. Should I change course now or later?

If you don’t qualify for President Biden’s federal student loan forgiveness, see if you can afford to repay your student loans now, Kang said. As interest rates rise, so will repayments on variable rate loans. Therefore, it is a good time to pay off personal loans and outstanding credit card debt.

But Thompson advises against any sudden moves. “You may not necessarily stay with the current allocation, but don’t completely retire,” he told MarketWatch. At the end of the day, playing a long-term game is the key to success in the stock market, Kang added. And that means you don’t make any changes based on fear.

Sometimes the best action is no action. Riding out the bear market and economic uncertainty by not checking your portfolio every five minutes can be a blessing. “Doing nothing is not a bad thing,” Kang said. “Just because something is going on doesn’t necessarily mean you have to make changes.”


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