Inflation ebbs and flows but is most noticeable when it shows up as sizable increase at the gas pump or the grocery store, as we are seeing now. This newest wave is due at least in part to the recent actions by the Federal Reserve Bank of pouring money into the economy as Covid stimulus payments. Increasing the country’s monetary supply overall causes goods and services to go up in price (along with higher wages).
Whatever the cause of inflation, it remains to be the stealth enemy of all investors and consumers alike, quietly eating away at our purchasing power. Unfortunately, this time around, inflation is showing up at a very inopportune time because interest rates on bank savings accounts, CDs, and other “safe” investments are at all-time lows. When a person puts money in the bank or other “safe” low interest investments, the principal may increase slightly over time, but it will buy less, often much less, at a future date than the investor would hope.
It’s common knowledge that to stay ahead of inflation (and taxes) an investor must be willing to tolerate volatility. Volatility is not “risk” in the true sense. Volatility and risk are terms often used interchangeably, but they are very different phenomena with opposing financial outcomes.
Inflation is not only the enemy of your family but also the enemy of your church accounts. Church boards often make very conservative investment decisions to avoid volatility not realizing the true risk involved in doing so. Now more than ever, it is a good idea to review where your personal and church accounts are invested and look at the interest rates.
You don’t have to sacrifice growth for comfort. And your church accounts shouldn’t suffer while you’re trying to be good stewards. Great options are available that will provide better returns and manage volatility. One example is our liquid, non-qualified family investment accounts that have historically outperformed inflation with only a modest amount of volatility. A well-managed diversified portfolio is always the best hedge against inflation along with the guidance of a qualified financial advisor who knows you and your goals.
For a more in-depth look at investment principles, including risk and volatility, watch our “Successful Investing” video. Invite your college-age or adult kids. We have received amazing feedback from families who have taken the 20 minutes to start that conversation. Or try the super short “What Is Real Risk in Investing” video.
We always enjoy talking to you. Contact us for more details or to review your accounts.