What Should I Do During High Inflationary Periods?


As we start 2022, we are in a period of record-high inflation. According to the Labor Department, the consumer price index climbed 7% in 2021, the most significant 12-month gain since June 1982.


Many clients wonder how all the inflation is going to impact their investments. The day-to-day rising cost of living decreases the power of the dollar bill in the here and now, but what about 5, 10, 15 years from now? Having the costs of goods and services increase faster than wages can keep up is part of the effects of inflation. But, there are financial opportunities if you know where to look.


If you can take advantage of high inflationary periods, you can seize financial opportunities rather than be negatively affected by them. Here are the top four financial moves people can make during high inflationary periods.


Here are the top four financial moves to consider in periods of high inflation.


  1. Reexamine your entire portfolio and make sure you are adequately diversified.

Diversification is vital for long-term success in your investment portfolio. Being too heavily weighted in any one asset class can leave you exposed to more risk than you may want or are comfortable with. However, when you understand how certain asset classes perform during different economic cycles, you can adjust your portfolio to be more invested in asset classes that prosper during periods of high inflation rather than limiting your potential by keeping things the same. 


This doesn’t mean that you throw 100 percent of your portfolio into a thriving asset class. However, you can adjust to better position your portfolio to take advantage of thriving investments while still minimizing your risk. Staying diversified overall can keep you protected when markets shift again.


  1. Consider investing more in commodities 

The asset class that has historically performed well during high inflationary periods is commodities, which include raw materials such as oil, beef, silver, and natural gas. Currencies are also considered a commodity. When the cost of goods and services increases, so does the value of commodities, which is why they tend to perform well. While commodities are a worthwhile investment during periods of high inflation, it is important to note that they are highly volatile and are affected by supply and demand. Given today’s supply chain issues, it is imperative to diversify even among the type of commodities you invest in so that you don’t take on more risk than you can withstand.


  1. Review your current and potential real estate investments

Real estate investments also work well during periods of high inflation. Rising inflation means rising property values and subsequently increasing rental prices. For this reason, review your current and potential real estate investments to make sure you are capitalizing on the financial opportunity. You may want to raise your rental prices, or you may want to make a new real estate investment purchase. However, real estate investments aren’t for everyone and even though they can yield a favorable return during high inflationary periods, you must also ensure that you are not taking too much risk in real estate


  1. Don’t overreact one way or another – stay objective

Before you make any changes to your investment portfolio, gather information, stay objective, and don’t overreact. Maintaining a level head with your financial decisions will help you make wise choices with your money rather than reactive decisions based on what you read or hear from financial pundits in the media. How you take advantage of periods of high inflation may look different than your friend, colleague, or family member because of your situation and long-term financial goals. 


Yes, you don’t want to lose out on a financial opportunity today. But you also don’t want to lose sight of the long-term financial goals of tomorrow. You are better prepared to act in your financial best interest when you can weigh and assess your financial moves through that lens. 


As with any change in the economic environment, you don’t want to make impulsive or reactive decisions in a vacuum. In working with my clients, we have made adjustments to capitalize on rising inflation while also protecting their portfolios when the market shifts again. 


These are strange times, yet the markets are cyclical and have behaved similarly in the past. We saw record rates of inflation in 1982. From there, a recession, and then recovery. How the United States government chooses to respond to today’s high inflation and the policies they will enact to combat it are yet to be seen.


Though the one thing we know for sure when it comes to the economy is that markets go up, and they go down. So, as long as your portfolio is built to withstand certain uncertainties, you are better positioned to weather any storm that comes along while also taking advantage of opportunities present in the wake of financial shifts in the economy.  


Having a watchful eye on your investments and someone more knowledgeable to help you steer your financial decisions can be invaluable to your overall success. It can also provide you with a sense of comfort that you have the right team in place to help you navigate your financial life.