Should You Change Your Investments Because of Inflation?

In the wake of our continued economic uncertainty and rising inflation, you may have questions about what you should do to protect your longterm investments. In this post, I share why taking no action is most likely your best course of action. 

A Cautionary Tale

I’d like to share a story with you about a client I worked with a few years ago.  When we met to discuss estate planning, she was excited to tell me how she had $100,000 in her savings account. 

When I asked her if she would be investing that money, her answer was an emphatic, “No.” In 1987 she lost a lot of money in the stock market and feared losing more. Since then, she’s kept all of her money in a savings account where she feels it’s safe.

My client was correct in her thinking that her money was safe in her savings account - 35 years later, she still had that $100K. However, she can't buy today what she could have purchased for $100,000 35 years ago. For example, if she wanted to spend that money on regular household expenses such as a car, groceries, clothing, etc., what would have cost $100,000 in 1987 would now cost $240,000.

In comparison, if my client had left that $100,000 in her 401K back in 1987, she would have seen growth of about 5%. Over the course of 35 years, that $100,000 would have grown to about $550,000. This estimate includes the 2008 economic downturn and other periods of slow growth. 

Don’t Panic

I know economic news can be a bit scary these days, but it’s important to remember that investing is the long game. Whether you’re saving to buy a new boat, or build your retirement nest egg, the best approach is to stick with your current plan. Over time your investments will go back up. 

In the meantime, one way to ease your mind and empower financial decisions is by understanding your cash flow. To get started, download my free Cash Flow Analysis Template