Christine Benz, director of personal finance and retirement planning for Morningstar, is known for her insightful research and informative columns and also co-hosts a regular podcast, The Long View, in which she and Morningstar’s Chief Ratings Officer Jeffrey Ptak interview retirement and financial experts.
Turning the tables a bit in our VIP series, we asked Benz via email a series of questions that touched on not only her professional knowledge but what she does off the clock as well.
1. What market indicator or industry statistic are you watching most closely right now and why?
Christine Benz: I’d be lying if I said anything other than CPI at the moment. Inflation is top of mind for everyone right now and a major point of discussion in my professional life, [as well as] when I’m out and about in the real world.
People experience rising prices so viscerally, and they have a lot to say about them!
2. How has this statistic been changing recently, and how do you expect it to change next year?
Inflation was a nonissue for a good decade-plus — generally much lower than the historical averages. When a trend persists that long, there’s a natural inclination to assume it will ever be thus.
I’m not in the prognostication business, but I do expect that some of the current inflationary pressures will abate before long. And what’s underdiscussed is the leverage that workers have right now — rising wages are an offsetting force that helps compensate for inflation.
3. What would you suggest advisors do now or consider doing in the future about it?
It’s smart to think about inflation as affecting both sides of the ledger — spending and income. On the spending side, to what extent is the client spending heavily on things that are inflating rapidly — such as used cars or new homes in Austin or Nashville?
Jason Zweig [of The Wall Street Journal] wrote long ago about how we each have our own inflationary experience based on our spending baskets, and that’s such an important concept. He called it “me-flation”; in other words, inflation isn’t CPI, and we can put a finer point on it.
And then on the income side of the ledger, to what extent is the person’s purchasing power protected? If it’s someone who is getting solid cost-of-living adjustments from their job and they have an equity-heavy portfolio and don’t plan to retire soon, I’d say they’re pretty well protected.
On the other hand, if it’s a senior who has a lot of fixed-rate investments that are being spent for living expenses, then inflation is a bigger risk factor and the portfolio should be hedged accordingly.
4. Who or what critical source of information do you track to keep up with this issue?
The St. Louis Fed data provide a good look at what’s going on in the economy alongside historical data. I often check TIPS breakeven rates on the [Federal Reserve Economic Data or] FRED site, as well as the yield differential between lower-quality bonds and Treasuries. (I’ve been fretting about yield-chasing for a long time, and I’ll be right eventually…)
We also have a lot of great market data on Morningstar.com. One quick view of stocks’ relative attractiveness is our Market Fair Value graph, which is an amalgamation of the price/fair values that our equity analysts have for their coverage universe. Not surprisingly, they think stocks are a bit expensive right now.
5. Are you changing any of your work habits at this stage of the pandemic?