Tips to fight inflation
Running Point and its chief investment officer, Michael Ashley Schulman, CFA, were quoted by Chime in an article — by Hannah Hottenstein, “Hyperinflation: What It Is and 8 Money Tips to Fight It” — discussing how to remain financially stable during periods of high inflation.
Inflation proof your budget!
There are multiple ways to inflation-proof your budget and improve your financial resiliency in times of inflation. Most importantly, try to have an income stream from either work or investments that has the ability to increase with inflation; commission based sales roles are an example where the pay potential increases with the cost of the underlying product being sold.
Investments with inelastic pricing
On the investment side, certain investments sometimes tend to hold up better during inflationary periods, like the stock of companies with relatively inelastic pricing structures (i.e., that can raise prices without disproportionately hurting sales), regulated utilities that can increase prices alongside rising costs, inflation protected bonds, and real estate that has the ability to increase rents. Nonetheless, as with any investment, multiple factors will affect an investment’s performance and should be judged in addition to inflation expectations.
Leveraging debt in your favor
On the liability side, debt can cut both ways. If you have variable rate or credit card debt that resets higher with rising interest rates or inflation, you may want to pay this down as quickly as possible before the rapidly compounding debt swamps any attempt to build-up savings. On the other hand, if you are locked into a relatively low interest rate loan like 3% on a home mortgage or 4% on an auto loan, inflation can be your friend as it depreciates the value of the underlying debt.
Quoted article excerpts are below:
Pay off high-interest debt first
Michael Ashley Schulman, Chief Investment Officer at Running Point Capital Advisors, recommends paying down high-interest rate debt like credit cards “before the rapidly compounding debt swamps any attempt to build up savings.”
As an alternative option, he advised that “if you are locked into a relatively low-interest rate loan like 3% on a home mortgage or 4% on an auto loan, inflation can be your friend as it depreciates the values of the underlying debt.” It’s all about leveraging debt in your favor and avoiding bad compounding interest.
Disclosure: The opinions expressed are those of Running Point Capital Advisors, LLC (Running Point) and are subject to change without notice. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Past performance is not indicative of future results. Forward-looking statements cannot be guaranteed. Running Point is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Running Point’s investment advisory services and fees can be found in its Form ADV Part 2, which is available upon request. RP-23-19