Inflation is taking a toll on all investors and is currently their greatest concern (79%) both personally and nationally. Financial advisors should be reaching out to clients to discuss the impact of inflation on their portfolios and to provide some reassurance regarding how to deal with this issue. Spectrem Group recently conducted research with investors with $100,000 to $25 million of net worth to understand their feelings regarding inflation.
The largest percentage of investors (29%) identify the television network news as their primary source of information regarding inflation. Almost a quarter (24%) use online sources to learn about inflation and 21% listen to the cable news to learn about inflation.
The largest impact that inflation has had on most of these households is in higher grocery prices (52%) and 16% indicate that higher gas prices is impacting their household. Because of inflation, investors are taking various actions. Twenty-nine percent are spending more time looking for discounts and bargains while 23% are buying less or buying cheaper brands. Twenty-one percent are saving more money and delaying the purchase of high expense items. Twenty percent are spending less for luxury items and 18% are spending less for basic household items. Twelve percent are delaying vacations and 11% are changing their investment portfolios while 7% are consulting more frequently with their financial advisor. As you can see below, inflation is generally having a greater impact on younger investors than older investors.
Most investors (38%) believe that inflation will last one to two years while 21% believe it will last two to four years. Just over a third believe the inflation will be gone within a year. It’s interesting to note that investors primarily blame supply chain problems (27%) for inflation while 25% blame government policies and practices and 17% blame government spending.
Financial advisors need to reach out to their clients immediately. It’s important to make sure that investors understand the impact of inflation on the economy and on their portfolios. Keep in mind that while some Baby Boomers may remember inflation, they were relatively young when the last levels of historic inflation occurred. Younger investors have no experience with inflation.
If necessary, recommend portfolio changes. Be sure to address cash flow issues with investors. They may be spending more than in the past just to meet current expenses. This may impact long term financial plans.
Finally, make sure investors understand the impact of inflation on assets such as real estate. Not only do they need to understand the impact of inflation on the stock market, but on all of their assets.
Inflation is a difficult issue and advisors need to be proactive in discussing implications with investors. Don’t ignore it.