Inflation Archives - The Free Financial Advisor

Here’s The 10 Real Reasons Why Millennials Are Saving So Little

May 24, 2024 by Teri Monroe Leave a Comment

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Millennials, often dubbed the “generation of avocado toast” and “living for the moment,” are frequently criticized for their supposed lack of financial responsibility. But is this reputation entirely warranted? Here, we delve into the real reasons why many millennials find it challenging to save money despite their best intentions. From economic factors to shifting societal norms, we uncover the underlying causes behind their saving struggles and offer actionable solutions for a brighter financial future.

1. Stagnant Wages in a Rising Cost Environment

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Stagnant wages refer to a situation where the average income earned by workers remains relatively unchanged over a period of time, despite inflation and economic growth. For millennials, this phenomenon especially resonates, with many entering the workforce during or in the aftermath of the Great Recession. Factors contributing to stagnant wages include globalization, automation, and the decline of unions, which have weakened workers’ bargaining power.

As a result, millennials struggle to keep up with the rising cost of living, making it challenging to allocate funds towards saving for the future. Stagnant wages also perpetuate income inequality, as those at the lower end of the wage scale face the greatest financial strain, further hindering their ability to achieve financial stability and build wealth over time. Addressing stagnant wages requires systemic changes such as increasing the minimum wage, investing in education and skills training, and promoting policies that foster inclusive economic growth.

2. Rising Housing Costs and the Rent Trap

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The rising cost of housing creates a daunting barrier for millennials looking to achieve homeownership. Skyrocketing real estate prices, particularly in urban areas, push the dream of owning a home out of reach for many. As a result, millennials are increasingly trapped in the rental market, where steep rents consume a significant portion of their income. This “rent trap” not only hampers their ability to save for a down payment but also perpetuates a cycle of housing instability and financial insecurity. Ultimately, addressing the housing affordability crisis requires innovative solutions such as increasing the affordable housing supply, implementing rent control measures, and providing financial assistance programs for first-time homebuyers.

3. Mounting Student Loan Debt

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Mounting student loan debt is a significant financial burden for millennials. With the rising cost of higher education outpacing wage growth, many millennials owe tens of thousands of dollars in loans. These hefty monthly payments eat into their disposable income, making it difficult to save for emergencies, invest in their future, or achieve other financial goals. As a result, student loan debt often delays milestones like buying a home, starting a family, or saving for retirement, hindering millennials’ long-term financial stability.

4. Gig Economy and Unstable Income

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The gig economy fundamentally transformed the nature of work for millennials. Rather than traditional full-time employment, many choose short-term, freelance, or contract work arrangements offered by platforms like Uber, Airbnb, and TaskRabbit. While the gig economy provides flexibility and autonomy, it also comes with instability and unpredictable income streams. This lack of stability makes it challenging for millennials to budget effectively, plan for the future, or save for long-term goals like retirement.

5. Healthcare Costs and Financial Stress

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Millennials face mounting healthcare costs, whether through premiums, deductibles, or unexpected medical expenses. The fear of inadequate insurance coverage or looming medical bills adds a layer of financial stress. This stress makes it difficult to prioritize saving for the future over immediate healthcare needs. Many millennials are even avoiding visiting the doctor since they can’t afford their deductibles. This often leads to more serious medical conditions, since preventative care is being ignored.

6. Temptation of Instant Gratification

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Living in an age of instant gratification, millennials are bombarded with temptations to spend rather than save. From flashy tech gadgets to trendy experiences, the allure of instant satisfaction often trumps the discipline of saving for long-term goals, perpetuating a cycle of consumption over savings. Especially with the rise of flexible buy now, pay later apps such as Afterpay and Klarna, many millennials spend beyond their means. Ultimately, this can lead to financial trouble, as well as the inability to save.

7. Lack of Financial Literacy and Guidance

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Many millennials lack foundational financial literacy skills and guidance on how to manage their money effectively. Without proper education on budgeting, investing, and debt management, they struggle to make informed financial decisions and prioritize saving amidst competing demands. Millennials sometimes blame their parents for not teaching them more about money. As a result, many millennials feel that they are playing catch up regarding making prudent financial decisions.

8. FOMO Culture and Social Pressures

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FOMO, or the fear of missing out, has become a pervasive aspect of millennial culture, fueled by social media and the constant stream of curated lifestyles on display. For example, the pressure to participate in trendy experiences, travel to exotic destinations and own the latest gadgets can lead to impulsive spending and a disregard for long-term financial goals. This culture of FOMO fosters a sense of inadequacy and comparison, driving millennials to prioritize immediate gratification over responsible saving and financial planning. Overcoming FOMO requires mindfulness and self-awareness.

9. Rise of Inflation

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The rise of inflation presents a significant challenge for millennials’ ability to save. For example, as prices for goods and services increase, the purchasing power of their income diminishes, making it harder to stretch their dollars and allocate funds towards savings. Also, inflation erodes the value of savings over time, reducing the real returns on investments and making long-term financial goals more elusive. In sum, millennials must navigate this economic landscape by seeking ways to mitigate the impact of inflation through strategic financial planning, investment diversification, and seeking higher-yield savings options.

10. Economic Uncertainty and Future Anxiety

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Economic uncertainty looms large for millennials, who have witnessed significant upheavals like the Great Recession and now face the uncertainties of a rapidly changing job market. Altogether, this volatility breeds anxiety about the future. Faced with the prospect of job insecurity, stagnant wages, and the looming specter of automation, many millennials feel uncertain about their ability to build a stable financial foundation.

As a result, this anxiety leads to a sense of paralysis, where saving for the future feels futile amidst the backdrop of economic uncertainty. To address this challenge, millennials must focus on building resilience. For example, this can be achieved through building emergency funds, skill development, and seeking out stable employment opportunities in promising industries.

Barriers to Saving for the Future

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While millennials are often perceived as lacking financial prudence, the reality is far more complex. Ultimately, economic factors, societal pressures, and personal circumstances converge to create formidable barriers to saving for millennials. By understanding the real reasons behind their saving struggles and addressing them with empathy and practical solutions, we can empower millennials to take control of their financial futures and build a more secure tomorrow.

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Teri Monroe

Teri Monroe started her career in communications working for local government and nonprofits. Today, she is a freelance finance and lifestyle writer and small business owner. In her spare time, she loves golfing with her husband, taking her dog Milo on long walks, and playing pickleball with friends.

How Inflation is Changing Our Lives and Not for the Better

August 28, 2023 by Tamila McDonald Leave a Comment

Back in 2021, inflation hit its highest point in 40 years, with prices rising by about 7 percent in December when compared to the previous year. Experts project that inflation will ease in 2023, but that doesn’t mean the impact won’t remain well beyond when the rates recede. Instead, they’ll affect the lives of many, mainly for the worst. If you’re wondering how inflation is changing lives, and not for the better, here’s what you need to know.

How Inflation is Changing Lives

Inflation typically pushes prices up, including on everyday goods and household staples. While some inflation over time usually isn’t avoidable, extreme increases create substantial financial hardships for many people, particularly lower-income households. Inflation to this degree dramatically reduces buying power and, if you’re already struggling with a tight budget, it may seem like your ability to make ends meets evaporates overnight.

Even middle-income households can feel the pinch. Often, rapid inflation isn’t coupled with corresponding wage growth. As purchasing power falls, households that were once reasonably comfortable can end up on the brink.

Retirees Are Burdened As Well

Retirees are similarly burdened. Since many older Americans live on fixed incomes, falling buying power can be catastrophic, especially if it happens quickly.

In all of those cases, quality of life diminishes. Households have to make tough choices. For example, they may have to decide between buying gas to get to work or getting a critical prescription medication. They might end up debating between buying food and covering an electric bill.

While those examples may seem extreme, they can reflect reality for a surprising number of Americans. Additionally, even if inflation rates fall, prices will remain high if inflation is part of the equation at all. While there may be some balancing, some product may keep their bigger price tags for a while, particularly if companies are trying to recoup lost profits that they experienced due to inflation.

Other Sectors That Are Impacted

There are other sectors that also see the impact of inflation. With rapidly rising home prices, first-time buyers may have a difficult time competing in the market. They may be forced to delay homeownership or might take on loans that stretch their budget too thin.

If borrowers have variable rates on loans or credit cards, the interest they pay may be heading upward. When inflation is running rampant, variable rates usually increase, resulting in larger financing charges.

Ultimately, inflation has a significant impact on most people. And, in most cases, it isn’t for the better.

Should You Worry About Inflation?

Generally speaking, worrying about inflation isn’t going to reap any dividends. However, being aware of its presence and potential impact is wise. By knowing when inflation is having an effect, you can make decisions before your budget is stretched too thin. Thus, giving you the ability to better weather the storm. Additionally, you can look for income-boosting opportunities. This could include a side gig or part-time job, allowing you to increase your earnings to compensate for lower buying power.

Ultimately, inflation won’t remain this high forever. As supply chain issues resolve, wages shift, and other changes occur, the situation usually calms notably, even if it doesn’t go away completely. Ideally, you simply want to adapt as much as possible, ensuring you can preserve your buying power until inflation becomes less of an issue.

Have you or your household been personally impacted by inflation? How did it affect your budget and financial wellbeing? Have you found a way to limit its effect on your finances that you’d like to share? Share your thoughts in the comments below.

Tamila McDonald

Tamila McDonald is a U.S. Army veteran with 20 years of service, including five years as a military financial advisor. After retiring from the Army, she spent eight years as an AFCPE-certified personal financial advisor for wounded warriors and their families. Now she writes about personal finance and benefits programs for numerous financial websites.

Eight Ways To Counter Inflation

May 4, 2022 by Claire Hunsaker Leave a Comment

While it’s a problem that has been around for centuries, there are ways to counter inflation. It can be difficult to fight against, but with the right tools and strategies, you can overcome it. In this blog post, we will discuss nine ways that you can counter inflation and protect your hard-earned money. Keep reading to learn more!

What Is Inflation and How Does It Affect Your Money?

Inflation is the sustained increase in the prices of goods and services. This means that, over time, your money will buy less and less. Inflation can be caused by a variety of factors, including economic growth, supply and demand imbalances, and central bank policies.

People experience inflation at the gas pump, at the grocery store, and when they pay their utility bills.

Inflation is often described as a “hidden tax” because it erodes the purchasing power of your money. For a lot of people, inflation is confusing especially since we haven’t had a lot of it in the last 30 years.

The History of Inflation

In 1921, the U.S. Bureau of Labor Statistics (BLS) began publishing a national consumer price index (CPI), including estimates of the CPI back to 1913. This uses real information about what families spent money on (and how much they spent) across different geographies in the United States. Today, the data focuses on urban consumers.

In the United States, inflation has averaged about 2.36% per year from 2000 to 2020. Pretty close to the Federal Reserve target of 2%.

However, there have been high inflation spikes in the past. After World War II, when price controls were removed, the G.I.s came home and increased consumer demand, spiking prices up over 20%. The Korean war sent inflation to nearly 10%. And the Oil shocks of the ’70s sent prices up nearly 15% in two major spikes.

Today, many people are experiencing high inflation for the first time.

How Can You Protect Your Money From Inflation?

There are a few things that you can do to help protect your money from inflation.

Real estate is a great hedge against inflation. When prices go up, the value of real estate usually goes up as well. This is because people still need a place to live, and they will pay more for housing when the cost of other goods and services rises.
Invest in assets that will increase in value as inflation rises. This includes things like stocks, real estate, and precious metals.
Another way to protect against inflation is to ensure your income is protected if you currently depend on it, through disability insurance. This is especially true for single-income households.
You can also hedge against inflation by investing in Treasury Inflation-Protected Securities (TIPS). These are bonds issued by the government that provide you with protection against inflation. Series I bonds allow investors to ride inflation. These bonds are marked to inflation, and issued by the U.S. government. They provide investors with a stream of income that increases along with inflation. They can be purchased through Treasury Direct and have some penalties if you sell them early.

Ways To Counter Inflation Strategically

Inflation can be a scary thing, but there are ways that you can protect your money from it.

First, try to reduce the variable interest rate debt that you have. This is not the time to pay down low fixed interest rate mortgages. Instead, focus on reducing the balance of any credit card debt or adjustable-rate loans that you have.

Second, reduce spending on high inflation items. Gas, for instance, is up 40% in 2022. Similarly, home furnishings and appliances are up over 10%. Rethinking how you spend on high-impact items can help reduce the overall impact of inflation on your budget.

Third, don’t forget to include and possibly increase inflation in your financial planning. When you are estimating how much money you will need in retirement, be sure to use an inflation-adjusted number, and review that number annually.

Finally, try to stay informed about what is happening with inflation. This will help you make the best decisions for your money.

Final Thoughts

Inflation can rattle even the most steely investor, but there are ways that you can protect your money. A time of high inflation is a time to be conservative and watchful.

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Claire Hunsaker

Claire Hunsaker, ChFC®, is a Chartered Financial Consultant featured in American Express, Forbes, Parents, Real Simple, and Insider. She offers free financial planning for single women through AskFlossie, where she is CEO. Claire holds an MBA from Stanford and is an IRS-certified Tax Preparer. She has 20 years of business and leadership experience and approaches money topics with real talk and real humor.

Investment Risks in the World Today

March 16, 2022 by Jacob Sensiba Leave a Comment

The world is crazy right now. The war with Russia and Ukraine has created investment risks and opportunities with commodities, specifically. Inflation is also an issue. What do you do with all of these moving parts in the global economy?

Gold

Gold has only gone up since the war began, up over $2,000 for the first time since 2020. The reason being is that gold is a store of value and is often seen as a safe asset during times of uncertainty, like war, inflation, or a pandemic.

Gold isn’t the only asset that’s used in times of uncertainty. Cash, bonds, and other precious metals have also seen a massive inflow lately.

Crypto

Cryptocurrencies have also seen a run-up in recent weeks, for two reasons. One, some people do see cryptocurrencies as a store of value like gold. And two, cryptocurrencies have played a role in this war. Because Russia has been cut off, financially, from the rest of the world, they’ve used crypto to finance operations. Ukraine has done the same, but for the reason of being able to raise money from different channels.

Oil

The price of oil has been on a roller coaster since the war began. Russia supplies a lot of energy to the world. It supplies the U.S. with just 3% of oil, but it supplies Europe with most of what they use. That said, the price of oil went up very fast to about $125/barrel because the US and other countries blocked them off to further disrupt their finances.

It’s come back down since then thanks to OPEC+. They pledged to increase production to make up for the loss in supply.

Inflation

Inflation is off the charts right now. The most recent reading came in at 7.9%. There are quite a few things that are seeing the effects of it. Food is getting more expensive. Gas, obviously, due to supply constraints and inflation is getting more expensive. Property is also getting more expensive. Interest rates are going up as well. My wife and I refinanced late last year and locked our rate in at 3%. The most recent reading came in at 4.5%.

The FED is going to make some moves as well. Because of the war with Russia and Ukraine, they will take a more measured and conservative approach, so it’s possible that inflation is a problem for longer because the FED won’t hike rates as quickly as they may have previously intended.

Commodities

There are some other commodities, besides gold and other precious metals, that are feeling a pinch due to the war between Russia and Ukraine. Wheat is the biggest example of this because between Russia and Ukraine, they produce and ship a third of the world’s wheat.

Unintended consequences

Even though the war is between two countries, it’s affecting everything (though differently than how it’s affecting Russia and Ukraine). There are logistical problems that are delaying shipments of things. The air space above the scuffle is off-limits, so flights around the area are taking longer than they previously would have. Longer flights = more fuel and reduced volume on flights = increased costs.

There are a lot of investment risks and opportunities due to the moving parts in the world right now and the market will continue to be volatile until things settle down. If you have time to ride out some ugly markets, stick to your plan. If you’re in retirement or close to retirement, reducing your risk might not be a bad idea.

Disclaimer:

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

Jacob Sensiba

My name is Jacob Sensiba and I am a Financial Advisor. My areas of expertise include, but are not limited to, retirement planning, budgets, and wealth management. Please feel free to contact me at: jacob@crgfinancialservices.com

www.crgfinancialservices.com/

Managing High Inflation in Retirement

December 29, 2021 by Jacob Sensiba Leave a Comment

Inflation is high. We all know that. I’ve been writing about it for months and it appears that it’s here to stay. With all of that said, I saw a question the other day about how to manage the high inflation when you’re in retirement, and I thought it was a good topic to talk about today. So we’re going to discuss high inflation in retirement, how it’s impacting retirees, budgeting strategies, investment strategy changes, and if inflation will be an ongoing concern for retirees.

Inflation right now

It’s high…no surprise to anyone. In January it was 1.4%, in April it was 4.2%, in July it was 5.4%, in October it was 6.8%, and in December it was 5.9%. That’s historically high. The highest it’s been in 40 years. Will that stay, only time will tell and we’ll get into that later.

How is it impacting retirees?

Things are getting expensive, so when you set a budget at the beginning of your retirement you account for the current price of the things you need. You should also account for increased costs of items as time goes on because there can be big or small increases…either way, prices costs will go up.

Groceries and energy are two prime examples of things that have gotten more expensive recently. So when those things went up in price, it probably pinched people’s budgets, and/or pushed forward costs that probably weren’t expected for several years. Odds are, they’re spending more money now on food and energy than they anticipated. Hopefully, people have been able to make adjustments already.

Budgeting Strategies

There really aren’t a lot of tips I can give you. The best thing I can really say is to cut costs where it makes sense to account for things that are now more expensive. The other tip, though this is more of a gamble, is to not make any changes now and make changes in the future when inflation comes down.

Investment Strategies

With your investment, you’ll need to reallocate some assets. I wouldn’t take any money out of stocks. What I would do is take some money out of your bond investments and put it into precious metals. The FED said that they plan on hiking rates three times in 2022. Bond prices will go down when interest rates go up. Increasing your stock allocation or putting some money in precious metals could be a good way to combat inflation.

High inflation here to stay?

No, I do think it will be here until the FED hikes rates, but my reasoning for that has to do with what happened in 2018. If the FED can raise rates without putting a cork in the recovery, then I think there’s a possibility that inflation and the federal funds rate will stay elevated until the bubble pops.

Disclaimer:

Jacob Sensiba

www.crgfinancialservices.com/

What Currently Present a Risk to Markets?

September 22, 2021 by Jacob Sensiba Leave a Comment

Where is the market going? What kind of risks do we need to be aware of? There are three or four things to pay attention to right now. The FED, interest rates, inflation, Covid, China, the government, and geopolitics. Do any of these present a risk to markets?

Okay, more than three or four things, but the first three can all be lumped together. Interest rate policy is enacted by the FED and what happens with interest rates has a direct impact on inflation. Furthermore, the government also has a chance to impact inflation.

And I apologize if we bounce around a little from topic to topic.

The FED, Interest Rates, Inflation

The government and the FED have a lot of control over what inflation is going to do. We had a lot of liquidity injected into the market because of the pandemic, and there’s a very good chance we’ll see more of that in the near future.

A $3.5 trillion bill is circulating through Congress right now. If this bill gets passed, we’ll have a lot more liquidity injected into the market. That’s likely to be a large tailwind for inflation (which is already running much hotter than expected). If the FED continues to provide an accommodative monetary policy, we’ll see inflation get out of control, and they’ll have to increase interest rates much sooner than they had planned.

Covid

Covid is still hanging around. 75% of the country has received at least one shot and now the administration is pushing booster shots. This is even after the CDC and the WHO have insisted on holding off on a third shot until less fortunate countries have a chance to get more of their first poke. The numbers need to level off soon or I fear lockdowns may rear their ugly head, and we all know how much the economy liked that the first time around.

China

China is a new story. Specifically, Evergrande. The ginormous real estate company is on the brink of bankruptcy. Comparisons have been made to the collapse of Lehman Brothers during the GFC (great financial crisis). We’ll see what happens and if the Chinese government decides to step in. Ripple effects through the global monetary system are possible.

Geopolitics

The last story is geopolitics. This has to do with the deal the US and Australia struck to help the Australian government build nuclear-capable submarines. It angered France because they already had a deal with Australia to help them build submarines (not nuclear-capable though). Britain feels pretty good because they helped broker the US/Aussie deal. Most likely, this will end up being only noise but could present a risk to markets. Something to keep your eye on.

Disclaimer:

Jacob Sensiba

www.crgfinancialservices.com/

Economic Pressures

June 9, 2021 by Jacob Sensiba Leave a Comment

There’s a lot of movement in the economy. Several different news threads and innovations have the ability to change the direction and velocity in which our economy moves. In today’s newsletter, we’re going to talk about some of those economic pressures, what they entail, and what they mean for our economy.

Taxing corporations and the wealthy

A news story recently came out about taxes. More specifically, this news shed light on how the wealthy manipulate the tax code in their favor.

I think the information shared in this story was well known already, or assumed rather, but served as a confirmation. A large number of wealthy individuals aren’t “paying their fair share” in taxes.

This will only add fuel to the fire. The fire I’m talking about is the tax overhaul in the tax code. The Biden administration has said that they want to increase taxes on corporations and wealthy individuals/families.

If they’re successful, it would mean more tax revenue for the federal government, which is a good thing. Is there a chance that the increase in taxes creates a disincentive for those corporations and wealthy individuals?

Perhaps, but I don’t think it’s very likely, broadly speaking. I have only one reason…those corporations and individuals are good at making money, and I believe that will continue.

Government spending

As I said, the change in the tax code will generate more income for the federal government. You may be thinking, “Great! We can reduce the national debt!”

I think that’s very unlikely. That may sound skeptical, and it probably is on some level, but both parties are spenders now. It doesn’t matter if it’s a Republican or a Democrat in the White House, they’re both going to print money to push forward their agenda.

Borrowing costs

I’ve talked about inflation a lot lately, and I promise I’ll tone down after I make this point, but I haven’t explained why runaway inflation is a bad thing.

Now don’t get me wrong, there are advantages (i.e. increased rates on savings accounts), but the disadvantage is higher prices. Households can run into trouble because they can’t afford necessities anymore.

The larger problem, however, is the cost of borrowing. Over the last, almost 15 years, rates have been low. And they’ve stayed low, other than an attempt to increase in 2018.

People and corporations borrowed a lot of money. Some bought things they didn’t need. Others to increase research, development, and innovation. Some people used record amounts of leverage to take part in the wild stock market (as of late).

With that said, the cost of borrowing will go up and the cost to service that debt will go up. The higher rates go, the more money that will be needed to pay for/down the debt. When that happens, less money will be spent on “productive” things.

That can slow growth and negatively impact the economy. That’s why central banks reduce rates in times of negative or low economic growth. It reduces borrowing costs and incentivizes people and companies to spend money instead of saving it.

Labor

The last thing I’ll say that has the ability to tie into the last point is the current labor shortage. There are more jobs available right now than people to take those jobs.

Small businesses, in particular, find it especially difficult to fill vacancies. Couple a labor shortage with a strong push from workers, unions, and government bodies to increase wages, and you get wage inflation.

When wage inflation becomes more prevalent, price inflation (CPI) becomes more likely. If companies have to pay their employees more, they need to account for that increased expenditure somehow. They turn to increase the prices of their products and/or services.

Demand is unlikely to suffer because of higher wages. People are making more money, so they should be able to afford higher prices, right?

Conclusion

If you read back some of my other posts, you’ll see I’m optimistic in select areas of the market, and I’ll stay optimistic in those areas no matter what type of economic pressures the country faces.

With all that I said, I believe there are enough economic pressures to cause a decline in the market and the economy, but there’s no telling when that’ll actually happen.

Disclaimer

Jacob Sensiba

www.crgfinancialservices.com/

Employment, Stimulus, and Rising Prices

May 26, 2021 by Jacob Sensiba Leave a Comment

The dynamic of employment changed dramatically because of the pandemic and the stimulus provided to consumers as a result.ww

People were let go from their jobs, especially jobs that didn’t have a way to “work from home”. Factory jobs and jobs in the service industry, for example.

Government Intervention

To combat a declining economy and unemployed workers struggling to make ends meet, the government decided to inject liquidity into the market. They did this through increased unemployment benefits and stimulus payments to those that qualified.

This aid sent to consumers helped out a lot of people, but it didn’t entirely go according to plan. One of the intentions of the stimulus payment was to incentivize people to spend – that’s why a large number of the second payment came via a Visa gift card.

When people spend, the economy does better.

Unfortunately, people saved their stimulus payments, but thankfully the market and the economy didn’t suffer as a result.

Rising Prices

That leads to the predicament we could soon find ourselves in. The economy is doing better. The majority of the United States population has been vaccinated (just a reminder that a majority is anything over 50%). Daily life is starting to return to normal; it’s happening slowly, but we are trending in the right direction.

As people grow more confident in their ability to go out into the world, and they get more confident in the economy and the market, they’re likely to spend some of that savings.

Low rates, decreasing unemployment, and more spending are three legs to likely inflation pressures.

Inflation

Now, I know I wrote about inflation pretty recently (here), but I feel it’s necessary to beat that drum again.

The FED already said that they will be more liberal when it comes to monetary policy. That means they will be more likely to let inflation run hot (relative to their 2% inflation target) for an extended period of time.

What they are doing with that stance, is they don’t want to kill a recovery when it’s just getting started. That’s what happened in 2018 when they raised rates throughout the year, but that increase in interest killed the economic growth and popped a bubble.

Okay, so the recipe for inflation is set, but what does that mean for me?

Honestly, that’s hard to say. We already said that inflation is likely, and in some cases, it’s already here. The question is, how much inflation is too much? This question will be answered by the FED.

And the answer will show itself when they relax their easy monetary policy. Interest rates could go up and the FED’s balance sheet could reduce in size.

At that point, I believe it’s only a matter of time (my hunch is not a lot of time) until the bubble we’ve created pops.

If you’re invested for the long haul, hunker down and hold steadfast. Avoid panic selling. If your time horizon is shorter, soon may be a good time to take some profits and de-risk your portfolio.

Disclaimer

Jacob Sensiba

www.crgfinancialservices.com/

Inflation, Gold, Semiconductors

April 28, 2021 by Jacob Sensiba Leave a Comment

There are a lot of moving parts in the economy right now. Inflation has become a concern, people are looking at gold more as a hedge, and there’s a shortage in semiconductors. In this piece, we’ll explore some of those dynamics and what some of the investment implications are.

Inflation

Inflation will most likely increase. Many projections estimate the FED will meet/beat their target of 2%.

I do believe that an increase in goods and services will not affect demand as it would have in the past. Stimulus payments to consumers created enough excess cash that people didn’t mind, or even notice, an increase in prices.

I do realize I’m painting with a broad brush here, and undoubtedly there will be some that will notice the difference. I’m simply stating that demand will not suffer from price creep as it used to, at least while the government continues writing checks.

Gold

We could see another uptrend in gold. There’s a certain recipe that makes the case for a bullish perspective on gold – inflation pressures, increased money supply, and low-interest rates.

The FED continues to supply the market with liquidity with its asset-buying program. An increase in the money supply dilutes the value of the dollar (USD). When the USD decreases in value, typically gold does well.

There is a caveat to that, however. Demand for US Treasury securities is weakening, specifically from foreign investors. To double down on that, foreign investors are net sellers of Treasuries. There have to be enough buyers to meet Treasury issuance, otherwise, the FED won’t have enough “reserves” to inject liquidity into the system.

With regard to low rates, that is a good sign for gold, but it’s also a good sign for equities (companies) with a high tendency to borrow. I’m mainly looking at the technology sector. Especially these unicorns that have high valuations, but low (or negative) profits.

Semiconductors

There’s also a current market disruption at play here…semiconductor shortage. Demand across many applications are at multi-year, sometimes multi-decade, highs. Personal computers, electric vehicles, autonomous vehicles, AI, and the like all use semiconductors.

A semiconductor shortage has many implications:

Decrease in production
Price increase
Nationalist mentality
R&D disruption

A decrease in production can hurt the bottom line. It all depends on when the shortage ends. If production reduces enough for a sustained period, adjustments will have to be made by corporations.

A price increase is likely because of supply and demand dynamics. The price of semiconductors will go up, so the price of the products they’re used in will also go up. This could hurt demand for those products and could hurt consumers.

There are a select few companies that supply the majority of the world’s semiconductors. This could have a similar effect as Covid had with regard to supply chain management. Companies relied on global trade and cooperation to sustain their supply chain operations. When countries shut down due to the pandemic, global trade suffered as a result. Countries might shift to manufacturing their own semiconductors instead of relying on supply from trading partners.

Semiconductors are only getting less expensive and more efficient. With a shortage, and possibly less money coming into the manufacturers, it’s possible that this dynamic of cheaper and better plateaus…at least temporarily. It’s also possible that the shortage improves operations and makes the manufacturers more agile. Some countries have a very unique ability to progress, strengthen, and adapt when a roadblock presents itself.

With that said, I believe semiconductors will be a great investment opportunity. Their demand is only going to increase because of the push to provide the world with electric vehicles and clean energy. I would, however, pay attention to the shortage and I might wait until that shortage ends and prices stabilize.

Will Your Retirement Plan Keep up with Inflation?

April 30, 2018 by Leave a Comment

When planning for retirement most people start with the basics: their budget, their retirement age, life expectancy and their expected retirement income. Usually the inflation rate assumption is more of an afterthought. We all know that our expenses generally go up each year when inflation is greater than 0%. What so many don’t understand is that higher inflation rates usually mean higher tax bills.
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1. Stagnant Wages in a Rising Cost Environment

2. Rising Housing Costs and the Rent Trap

3. Mounting Student Loan Debt

4. Gig Economy and Unstable Income

5. Healthcare Costs and Financial Stress

6. Temptation of Instant Gratification

7. Lack of Financial Literacy and Guidance

8. FOMO Culture and Social Pressures

9. Rise of Inflation

10. Economic Uncertainty and Future Anxiety

Barriers to Saving for the Future

How Inflation is Changing Lives

Retirees Are Burdened As Well

Other Sectors That Are Impacted

Should You Worry About Inflation?

What Is Inflation and How Does It Affect Your Money?

The History of Inflation

How Can You Protect Your Money From Inflation?

Ways To Counter Inflation Strategically

Final Thoughts

Gold

Crypto

Oil

Inflation

Commodities

Unintended consequences

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Disclaimer:

Inflation right now

How is it impacting retirees?

Budgeting Strategies

Investment Strategies

High inflation here to stay?

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Disclaimer:

The FED, Interest Rates, Inflation

Covid

China

Geopolitics

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Disclaimer:

Taxing corporations and the wealthy

Government spending

Borrowing costs

Labor

Conclusion

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Disclaimer

Government Intervention

Rising Prices

Inflation

Disclaimer

Inflation

Gold

Semiconductors

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