Inflation Concerns Among The Wealthy

11/1/2021

Inflation, which was a primary financial concern in the late 1970s, has once again reared its ugly head and is becoming a concern for Americans of all wealth levels.  CNBC reported on October 29, 2021, that headline inflation, including food and energy, rose at a 4.4 percent annual rate in September, the fastest since 1991. Core inflation increased at 3.6 percent for the 12 months ending in September, also the fastest pace in 30 years. Core inflation is the change in the cost of goods and services that does not include food or energy. Many economists and financial professionals feel that core inflation can often be an indicator of inflation that will be long-term.

While many Millennials and Gen X investors are too young to have been financially impacted, or even remember the times when inflation was high in the past, all investors are beginning to feel some of the ramifications of the current inflationary economic environment. When Spectrem Group asked investors in October 2021 regarding the impact of inflation on their investment returns, 25 percent indicated that it was having a big impact on their investments while half of wealthy investors indicated it was having some impact. Twenty percent of investors remained neutral regarding whether or not inflation was impacting their investments and only 6 percent indicated that inflation was having little to no impact on their investments.

Realizing that three-quarters of wealthy investors feel there is at least some impact of inflation on their investments, it is interesting to know what investors are doing about their investments, given the current inflation and investor’s attitudes towards inflation. Over half of investors indicate that inflation does not impact any of their saving or investing. Investors at lower levels of wealth are more likely to indicate that it does not impact their saving or investing than investors at higher levels of wealth. Twenty percent of investors indicate they are investing more in equities as a result of their attitude towards inflation and the current inflation environment. That percentage jumps up to over a third of investors at the highest levels of wealth that are investing more in equities as a result of the inflationary environment. It is not surprising that over a third of investors with a net worth between $10 million and $25 million are avoiding investing in long-term fixed income as a result of their attitude towards inflation. A quarter of those same investors are also investing more in short-term fixed income, presumably with the hopes that they will be able to capitalize on this environment with their investment selections. Only 14 percent of wealthy investors have decided to keep more money in cash as a result of their opinions regarding inflation. 

Based on the current trajectory of inflation, it is unlikely this topic will go away quickly, so having discussions with financial professionals and coming up with a strategy that accounts for this inflation would be beneficial for all investors and would make the impact of inflation not feel as severe if one is properly prepared.