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November 11, 2022 at 01:10 PM
What You Need to Know
- Michael Finke and David Blanchett focus on long-term investment performance.
- Now is a good time for retirees to ask how their portfolios are positioned for inflation, Blanchett said.
- He also suggests that advisors ask clients about their flexibility with expenditures.
Financial advisors don’t need to get too tricky in helping clients find investments to counter high inflation and should stay focused on long-term portfolio performance, says Michael Finke, wealth management professor at The American College of Financial Services.
Finke addressed ways to approach high inflation during a podcast Wednesday with retirement planning expert David Blanchett, who noted that those in their working years already have a great hedge — their own human capital.
“You can get fancy, and fancy may work, like shifting from more of a growth strategy to more of a value strategy — that may make a certain amount of sense — but you can get a little bit too fancy when it comes to inflation protection and keep your eye off the ball in terms of the long-term success of an investment portfolio,” Finke said.
“You can do things to show your client that you’re aware of the risk of inflation while at the same time not making massive changes in your portfolio that are going to end up having negative long-term consequences,” he added.
While stocks historically perform well long-term, they’re inconsistent and not a great hedge when performing poorly, Finke said. It’s probably worth paying attention to how different types of investments have performed historically and not get caught up in the expectation that the equity risk premium will outperform inflation reliably, he said.
Blanchett, managing director and head of retirement research, DC Solutions, at Prudential Financial Inc.’s asset management business, PGIM, indicated that he’s making no big changes in his own portfolio to gird against extended inflation.
“I am doing absolutely nothing, I am a long-term investor. I have a very, very good inflation hedge in my human capital. Individuals who are younger who are working, over time, if there’s inflation wages tend to rise,” Blanchett said. “I don’t have to access savings for any reason.”
