10 Ways Inflation Affects Your Clients

Portfolio

Economy & Markets

Portfolio Construction

Asset Managers

Investment VIPs

ETFs

Mutual Funds

Alternative Investments

Retirement Planning

Saving for Retirement

Retirement Investing

Spending in Retirement

Social Security

Financial Planning

Tax Planning

Trusts and Estates

College Planning

Charitable Giving

UHNW Client Services

Behavioral Finance

Practice Management

Building Your Business

Diversity and Inclusion

Marketing and Communications

Succession Planning

Compensation and Fees

Regulation and Compliance

Federal Regulation

State Regulation

Legislation

Litigation

Cybersecurity

Technology

Artificial Intelligence

Investment Platforms

Marketing Technology

RegTech

Life & Health Insurance

Life Insurance

Health Insurance

Annuities

Long Term Care Insurance

Running Your Business

LUMINARIES Awards

Event Coverage

Event Site

Newsletters

ThinkAdvisor

10 Ways Inflation Affects Your Clients

X

Share with Email

sending now...

Thank you for sharing!

Your article was successfully shared with the contacts you provided.

Portfolio > Economy & Markets > Economic Trends

10 Ways Inflation Affects Your Clients

By Bryce Sanders

Slideshow May 09, 2022 at 03:32 PM Share & Print

X

Share with Email

sending now...

Thank you for sharing!

Your article was successfully shared with the contacts you provided.

Many clients have never experienced higher rates of inflation. Some see higher interest rates and embrace it. Others see higher prices and dread it. Others don’t know what to expect.

How will inflation affect your client? Hopefully inflation will be brought back under control. In the meantime, clients need to be proactive. As their advisor, you can help. See the gallery above for some suggestions.

Bryce Sanders

NOT FOR REPRINT

© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Up Next

A Brief History of Economic Crises, Crashes and Recoveries

View Story

More on this topic

12 Best U.S. Cities for Retirement: 2023

What to Expect in Markets for the Rest of 2023

15 Best Cities for Financial Security in Retirement

BlackRock Launches TIPS ETF Suite

10 Ways Inflation Affects Your Clients

Exit

Exit

1. Prices on many everyday items will go up.
We are already seeing this now. TV news seems to pick an item like eggs and talk about price increases. It will seem everything is rising in price and people can’t do anything about it.

Proactive: We live in a capitalist society. When prices go up, other providers emerge, offering alternatives. Not everything rises at the same rate. If beef prices rise, now might be the time for your client to buy more chicken. Seek out the fruits and vegetables that are in season. If they are plentiful, prices should be lower.

(Image: Adobe Stock)

Advertisement

Exit

2. Businesses will pass costs on to consumers.
You see this in restaurant prices and car prices. Suddenly things you enjoy doing or buying are costing you more. If businesses are facing higher prices, they need to charge their customers more if they want to remain profitable.

Proactive: Other companies will seek to gain market share. Some firms will absorb price increases, at least for a while. If your client has alternative providers, suggest they do some serious comparison shopping.

(Image: Adobe Stock)

Exit

3. Interest rates on savings should go up.
So many people have seen generating retirement income can be very difficult when yields on savings, money market funds and bonds are 1%-2%. Retirement could be a lot better if they could get an 8% rate of return that is almost risk-free. They may be happy to see higher rates.

Proactive: Clients need to remember the return they get on savings rarely keeps them ahead of inflation. They may see higher interest rates, but inflation is still winning. They need to widen their investment horizon.

(Image: Shutterstock)

Exit

4. Clients will put off investing.
Back in the 1980s, you could buy tax-exempt bonds paying 11%, 12% and even 13%. Why didn’t everyone buy them? Because they were convinced rates were headed higher. People thought “If I wait, I’ll get an even higher rate.”

Proactive: Short-term rates should generally be lower than long term rates. This is when laddering bonds makes sense. If rates rise, the maturing lowest rung of the ladder can be reinvested as the new rung with the longest maturity.

(Image: Adobe Stock)

Advertisement

Exit

5. The stock market likely won’t have an easy time.
Many investors are only experiencing a volatile stock market for the first time. They may wonder “Why isn’t the market behaving like it is supposed to behave?” They might get discouraged and pull out of the market.

Proactive: Clients need to learn some sectors of the stock market behave differently when interest rates rise. What sectors benefit from rising interest rates?

(Image: Shutterstock)

Exit

6. Your client’s variable-rate debt will increase.
If your client has a home equity line of credit (HELOC), their cost of borrowing will rise when the Fed increases interest rates.

Proactive: They should either pay down that debt or shift to a fixed rate loan structure.

(Image: Shutterstock)

Exit

7. Social Security payments should increase.
There is a cost-of-living adjustment (COLA). This should help your clients on a fixed income. As prices rise, this should provide some relief.

Proactive: Remind clients Social Security should only be one part of their retirement income strategy. They need to pay attention to their other sources of income, like the total return on their investments.

(Image: Shutterstock)

Advertisement

Exit

8. Your fixed income client’s purchasing power will erode.
This is an obvious point, but one worth making. Suppose your client has a basket of goods they could buy with $1,000 today. They invest that $1,000 in a 10-year bond paying a fixed rate of interest. They spend the interest along the way. Ten years later the bond matures, returning them the $1,000 they invested. That basket of goods costs more now that it did 10 years ago. Their purchasing power has eroded.

Proactive: Your client needs to consider investments that will keep up with or hopefully exceed the rate of inflation. Can you give them some ideas?

(Image: Shutterstock)

Exit

9. Many people will tend to stockpile.
If you knew something you need will cost more tomorrow, wouldn’t you buy more today? Most people would. This leads to shortages. More important, it leads to waste.

Proactive: Your client needs to use common sense. Don’t go overboard on buying fresh fruit because the price is good. Where are you when the uneaten food has spoiled? Consider joining with friends or family if you want to buy in bulk. You get the benefit of the lower prices, and little or none goes to waste.

(Image: Adobe Stock)

Exit

10. Some expenses streak ahead of inflation.
Health care costs are a good example. They have exceeded the rate of inflation for many years.

Proactive: Your client should actively shop around and try to get better prices on the coverage they need. Be aware, there are no easy fixes.

(Image: Adobe Stock)

Choose your next slideshow ...

Exit

Slideshow

12 Best U.S. Cities for Retirement: 2023

Slideshow

15 Best Cities for Financial Security in Retirement

Slideshow

How Ready Are Americans for Retirement? Here are 12 New Stats

Slideshow

Gundlach’s 5 Top Market, Economic Predictions for 2023 and Beyond

Dark Mode

Featured Resources
View All

From John Hancock Investment Management
Time to Move Out of Cash and Short Duration Fixed-Income Strategies?

Download Now ›

From John Hancock Investment Management
Five Factors Influencing the Effectiveness of a 60/40 Portfolio

Download Now ›

From John Hancock Investment Management
A Glass Half Full: Bonds Now Offer Better Values Than They Have in Years

Download Now ›

From John Hancock Investment Management
Technical Headwinds Create a Silver Lining for Municipal Bonds

Download Now ›

Connect with ThinkAdvisor

About ThinkAdvisor Contact Us Advertise With Us Asset & Logo Licensing

Sitemap Terms of Service Privacy Policy

Copyright © 2023 ALM Global, LLC. All Rights Reserved.