When the Board of Governors of the United States Federal Reserve System met in March 2018, inflation was one of the key topics discussed. During the meeting, the Fed Governors reviewed inflation figures and forecasts to establish the prime interbank lending rate and figure out future economic policy. The reason the Fed pays very close attention to inflation is because it can become problematic when it falls out of pace with the gross domestic product, a situation that would devalue the U.S. dollar and destabilize the global economy. For California residents, inflation means two things: an increase in the Consumer Price Index (CPI) and less economic activity. In other words, things will get more expensive while opportunities to earn money diminish.
Inflation is expected to rise by 2.2 percent over the next 12 months across the United States. Jan Gleisner, a trusted San Diego financial advisor, has a few tips on what you can do to protect yourself and your family from this economic adjustment.
Generate More Income
Making more money is always easier said than done, but it is the most pragmatic method to combat inflation. When the CPI skyrocketed in the early 1980s, many workers were forced to find second jobs just to keep paying the bills, and this was at a time of high unemployment. By increasing your earnings now, you will have an easier time managing inflation in the future.
Look into Treasury Inflation Protected Securities (TIPS)
These sovereign debt securities are specifically designed to hedge against inflation. The interest paid by TIPS is fixed. However, the payments you get twice a year are tied to the principal and the rate of inflation. The value of TIPS fluctuates according to market demand, and they can be sold anytime as if they were Treasury bonds. TIPS can be purchased in $100 increments from retail stock brokerages or through a Treasury Direct online account.
Review Your Budget Now
If you are spending too much now, you will be spending even more when inflation rises in the future, and everything will be priced 2 percent higher than today. Dedicate a few hours to review your budget and try to reduce expenses by 2 percent. This may be a good time to talk to an insurance agent and inquire about policies with lower deductibles. If you have difficulty paying for a high deductible now, it will be even more difficult to do so in the future.
Choose Strategic Investments
Although investing in the stock market always includes some level of risk, you should consider the possibility of making investments that might rise during inflationary periods. Companies that deal in commodities tend to get a boost when inflation rises. Think about oil companies and major agricultural producers. You may also want to think about investment commodities such as gold. This is known as a “flight-to-safety” financial instrument that investors flock to during periods of inflation and market correction.
If you have additional questions on how to protect yourself from inflation, get in touch with Jan Gleisner, one of the best financial advisors San Diego has to offer. Don’t hesitate to plan your financial future. Reach out to Jan Gleisner today.