Manage Your Lifestyle and Portfolio Through Inflation and Volatility

By: Guy Hockerman, CPA, CFP® Senior Vice President, Financial Planning Manager
November 30, 2021

We are all experiencing the sharp rise in prices for what we pay for goods and services in every aspect of our daily lives. Many economists believe the effects of this inflationary period will be transitory. Time will tell. In the meantime, here’s the hand we’ve been dealt: the fastest inflation rate in 31 years.

Portfolio Inflation
Bottom line, it doesn’t matter what stage of life you’re in or your personal lifestyle. Practically everything you purchase is going to cost more, from food and transportation to health care and housing.

Consumer-Price Index Surges

Rising worries over inflation and market volatility cause concern for Americans as they grapple with protecting their lifestyles, portfolios, and nest eggs in these uncertain times. A recent Allianz study² revealed the following findings among the survey participants:
  • 36% say volatility is making them nervous about their retirement savings
  • 67% admit they are keeping some money out of the market to protect against losing it
  • 78% expect inflation to get worse in 2022
  • 69% believe inflation will negatively impact their purchasing power

As far as retirement planning is concerned, 72% of individuals taking part in the survey say they are worried the rising cost of living will impact their nest eggs – while 70% of participants admit they are worried they will be unable to afford the retirement lifestyle they
desire.²

PROTECTING YOUR MONEY
Inflation and volatile markets can seem a bit scary when it comes to protecting our hard-earned money, savings, and investments. However, there are three things you can do to minimize the effects of both on your finances.

Know how much of your lifestyle is tied to market performance.

Does the income from your investments combined with your Social Security, pension, and income annuity cover most of your usual expenses? If so, likely you are insulated from market downturns. Knowing this helps with the design of an investment portfolio that matches your ability to absorb certain risk factors. This also helps investors avoid the
big mistake: Panic selling into a declining market. This move has ruined more financial outcomes than a diversified stock and bond portfolio (at any level of risk) ever has.

HAVE A SOURCE OF FUNDS NOT TIED TO STOCK PERFORMANCE.
Having a cash flow plan in place helps define your goals, manage your cash, and protect your finances. Make sure you have an emergency savings account built up to cover a job transition, emergency, or shortfall in expected income. It’s important to set aside three to six months in cash if you are a salaried worker and six to twelve months or more if you are self-employed or a business owner.

Deposit enough cash in the emergency account to cover your day-to-day expenses such as food, clothing, medical, and transportation. Put in adequate funds to cover regular monthly payments such as your mortgage and utilities. Also, you might want to have ample cash in the account to cover deductibles for insurance—car, health, and homeowners—should you need to file a claim. The amount of cash in the emergency account should be tailored to
your needs—and your family’s—based on your lifestyle and budget.

Keep in mind, a diversified portfolio will have protection against a downturn, usually with bonds that are much lower in volatility. They provide a source to raise funds while stocks rebound.

Another tip: You also should consider keeping your emergency fund cash separate from cash in your portfolio in order to take advantage of new investment opportunities without having to sell existing investments and potentially create a taxable event.

If you are comfortable managing debt, today’s current interest rates make establishing a line of credit tied to your home or non-retirement investments something to consider.

Rather than using funds in your savings account for a large purchase, you may want to establish a line of credit instead. It’s one way to access cash and continue to enjoy low interest rates when you want or need to buy a big-ticket item.

Using your home equity or your investment account for loan collateral can each have advantages and disadvantages. Ask your financial advisor about the best way for you to establish a line of credit.

NEXT STEPS
Maintaining your lifestyle and portfolio’s value through the effects of inflation and market volatility during any stage of your life can be quite challenging. We are here to address all your current and future concerns and help you make educated decisions based on your goals and unique financial situation. Contact Commerce Trust Company today for more information regarding your options.

¹ Paul Brandus, MarketWatch, “Seniors get the biggest Social Security raise in years – and it’s already been eaten up by inflation,” https://www.marketwatch.com/story/seniors-get-the-biggest-social-security-raise-in-years-and-its-already-been-eaten-up-by-inflation-11636655501?mod=inflation, November 13, 2021.
² Allianz Life Insurance Company of North America, “After Summer of Optimism, Worries over Future Market Crash Reach Highest Levels in 2021,” Allianz 2021 Press Release, https://www.allianzlife.com/about/newsroom/2021-press-releases/worries-over-future-market-crash-reach-highest-levels-in-2021, October 4, 2021.

The opinions and other information in the commentary are provided as of December 1, 2021. This summary is intended to provide general information only, and may be of value to the reader and audience.

This material is not a recommendation of any particular investment or insurance strategy, is not based on any particular financial situation or need, and is not intended to replace the advice of a qualified tax advisor or investment professional. While Commerce may provide information or express opinions from time to time, such information or opinions are subject to change, are not offered as professional tax, insurance or legal advice, and may not be relied on as such.

Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Past performance is not a guarantee of future results.
Diversification does not guarantee a profit or protect against all risk.
Commerce Trust Company is a division of Commerce Bank.

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ABOUT THE AUTHOR

Guy Hockerman Commerce Trust Company
Guy Hockerman, CPA, CFP® Senior Vice President, Financial Planning Manager Commerce Trust Company
Guy is a financial planner manager for Commerce Trust Company. He is a member of the financial advisory services team — a dedicated financial planning practice within Commerce Trust that provides objective financial advice to clients.

Following a thorough assessment of a client’s unique situation and thoughts regarding wealth, Guy develops holistic and coordinated plans to help clients meet their short-term and long-term goals as well as take full advantage of various planning, tax, and investment strategies along the way.

With more than 20 years of financial planning experience, he is responsible for providing quality advice to clients and prospects of Commerce Trust. Holding both Certified Public Accountant and CERTIFIED FINANCIAL PLANNER™ designations, Guy’s extensive experience in financial planning includes working for banking and accounting institutions as a financial planner and tax advisor. His expertise includes planning for financial independence, executive compensation, estate preservation, philanthropy, and business succession.

Guy received his Bachelor of Administration in business and economics from Wheaton College. Guy is a member of several organizations, including the Financial Planning Association and the American Institute of Certified Public Accountants. Guy speaks and writes regularly on financial issues and has served as a faculty member for ABA National Graduate Trust School. Guy serves as a board member at Riverside Church in Webster Groves. Additionally, he is a K-1st grade Sunday school teacher and men's ministry leader at church. Guy enjoys spending time outside running, hiking and fishing.