Family Wealth blog

Inflation and Your Portfolio

A series of pie charts in various sizes follows along a path of historic inflation rates. The title reads Inflation and Your Portfolio

In the world of financial planning, understanding economic indicators is crucial for investors aiming to make well-informed decisions. One key indicator that has been making headlines for the past couple of years is, of course, inflation.

According to the U.S. Bureau of Labor Statistics, the Consumer Price Index (CPI) saw a 0.3% increase month-over-month in December 2023,1 following a modest 0.1% rise in November. Additionally, the Core CPI, excluding food and energy, rose by 0.3% month-over-month and showed a significant year-over-year increase of 3.9%. These trends carry considerable implications for stock and bond markets and could impact investors’ portfolios significantly. At the risk of explaining things you might already know, we should take a look at a few aspects of inflation.

How Inflation is Calculated

The U.S. Bureau of Labor Statistics calculates two especially important indexes monthly, ones that are relevant to investment portfolios monthly:

Consumer Price Index (CPI): This index measures changes in prices of consumer goods and services, such as gasoline, food, clothing, and automobiles, from the purchaser’s perspective.2

Producer Price Indexes (PPI): These indexes reflect the average change in selling prices from the perspective of domestic producers of goods and services.3

Inflation’s Impact on Retirement

Inflation affects the purchasing power of money in the future. For example, with a 3% inflation rate, $100 today will be equivalent to just $67.30 in 20 years, losing about a third of its value. In 35 years, this amount dwindles to merely $34.44. When we talk in glowing terms about “the magic of compounding” when it comes to investing and holding onto valuable assets, this is essentially the opposite. Inflation eats away at savings and gains, so it has to be accounted for and addressed within the context of long-term planning. And, since the average retirement keeps growing along with increasing life expectancy, inflation should be considered early and often.

Understanding the Recent CPI Surge

The CPI’s 0.3% month-over-month increase in December, particularly driven by a 0.5% rise in the shelter index, is noteworthy. This jump in shelter costs, accounting for over half of the total monthly CPI increase, prompts questions about the housing market’s influence on inflation. Investors may find opportunities in real estate investments like REITs, but they should proceed with caution given the potentially wider implications for the economy and financial markets.

Core CPI and Its Implications

Core CPI’s consistent rise, both month-over-month and year-over-year, points to sustained inflationary pressures, warranting attention from investors. This situation suggests the need for a reassessment of portfolios, especially since inflation typically reduces the real value of fixed-income investments like bonds.

PPI: A Comprehensive Perspective

The Producer Price Index, particularly in its modest increase, offers a different viewpoint, suggesting that inflationary pressures may vary across sectors. This variance necessitates a careful analysis of industry-specific data to identify sectors that might be more resilient to inflation or more susceptible to it.

Implications for Long-Term Investing

Inflation’s impact extends beyond immediate market reactions and has profound implications for long-term investing strategies. While we will always support a long-term approach to investing, investors should still consider the following when accounting for and adjusting to inflation:

Growth-Oriented Investments: Investing in growth stocks or sectors that can potentially outpace inflation should be a key consideration.

Income Strategies: Developing income strategies that can adjust to inflationary pressures is crucial. This is one area where your financial advisor can be especially helpful. It’s important that any effort made to counter the effects of inflation still align with your overall financial plan.

The Takeaway

The latest inflation data is a wake-up call for investors to consider the long-term impacts of inflation on their portfolios. It underscores the importance of a proactive and adaptable investment strategy in the face of rising consumer prices and persistent inflationary pressures. Potential actions include reassessing asset allocations, considering growth and income strategies, and exploring inflation-hedging investments. This doesn’t call for overreaction. Instead, it calls for careful assessment and decision making.

As always, maintaining a diversified portfolio and remaining alert to changing economic indicators are fundamental for successful investing. However, navigating these complexities can be challenging. Therefore, it’s imperative to consult with your financial advisor to discuss strategies for countering the erosive effects of inflation on your portfolio. Their expertise can provide personalized guidance tailored to your financial goals and risk tolerance, ensuring a robust, inflation-resistant investment strategy.





Inflation and Its Impact on Markets and Portfolios: Understanding the implications of CPI and PPI is crucial for investors; Copyright © 2024 FMeX. All rights reserved. Distributed by Financial Media Exchange

Disclosure: This information is for educational and informative purposes and shall not be considered a specific recommendation. Readers are advised to speak with their advisor at JL Bainbridge to determine their specific recommendations that meet their investment objectives and to review their portfolios. The material being provided is thought to be accurate. However, the information is compiled from multiple resources and may become outdated or otherwise rendered incorrect by new research or corrections without notice. J.L. Bainbridge & Co., Inc., is not a broker dealer and does not offer tax or legal advice. Please consult your tax or legal advisor for assistance regarding your individual situation. It should neither be assumed that future results will be as profitable or that a loss could not be incurred. For more information related to our firm, please see our disclosure brochures at and

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