For the coming year, dealing with inflation and pushing portfolio values up even further are vital considerations in personal finance, area wealth management professionals say.
On the one hand, over the past few months, clients have seen their portfolio values rise, said Jason Ayers, Investment Advisor with Stock Yards Bank & Trust, and now their decision lies with how to best use those assets.
“Clients have been amazed to see the value of their portfolio over the past several months, with the market and their portfolio reaching all-time highs,” he said. “Conversations have focused on how their financial goals may have changed, with some clients wanting to modify their current lifestyle by utilizing more of the assets from their portfolio, while other clients are wanting to protect their recent gains or looking for ways to continue to grow their wealth for future generations.”
Concerns about inflation, however, have some investors wondering what they can do to combat its effects.
Jason Ayers
“One of the best ways to protect against inflation is by maximizing sources of income that are tied to inflation, such as Social Security and pension payouts,” Ayers said. “Investing responsibly is a great way to combat rising inflation… Bonds are priced to outpace inflation expectations over the bonds investment time horizon, so bonds are used to fill intermediate-term spending needs. Stocks are a great hedge against long-term inflation fears, as companies can increase prices on goods and services, which helps maintain the purchasing power of your portfolio over time.”
And it will continue to be an issue through the coming year.
“Inflation will remain a headline risk as we move through 2022 and, relatedly, interest rates as the Federal Reserve winds down its bond purchasing program,” he said. “COVID has forced companies to think more strategically, with more employees continuing to work remotely and office buildings closing their doors. With over 10 million job openings, companies will continue to lean on automation and new technologies, such as artificial intelligence and machine learning, to optimize their operations.”
Infrastructure bill may provide investment opportunities
Ayers said that changes to the country based on the passage of the Infrastructure Investment and Jobs Act may create some wealth growth opportunities.
“At the individual security level, we invest in strong businesses that take pride in caring for their employees, giving back to their communities and are good stewards of the environment. We think this philosophy lines up well with the goals of the Infrastructure Bill,” he said. “Along with other considerations, the Infrastructure Bill is likely to continue the trend of on-shoring manufacturing facilities to the United States. We are interested in companies that are likely to benefit from this trend of bringing manufacturing back to the U.S., whether that is the equipment needed to build new facilities, optimizing warehouses to run more efficiently or providing improved forms of communication and transportation.”
But Steve Grossman, with Robert W. Baird & Co. Incorporated, said it’s the returns a company can provide and not the politics that should direct one’s investment strategy.
“We want to be owners of great businesses that provide above-average returns over entire business cycles,” he said. “We don’t let the political landscape shape our long-term approach to investing.”
On millennials, cryptocurrency and other trends
Steve Grossman
Grossman also said it’s helpful to have trained professionals assist in building your financial portfolio. According to a recent New York Times article, that’s a trend some millennials are bucking as they turn to cryptocurrency and online trading through apps like Robinhood instead of financial advisors.
“Like any field, someone not actively involved in that field falls into the category of not knowing what they don’t know,” Grossman said. “Comprehensive financial planning and investment management require significant education, resources and access to research and data that most individuals do not possess.”
Specifically, Grossman said his firm could not recommend investing in cryptocurrency.
“It’s a commodity and does not meet the parameters of a currency and is not a durable means of exchange,” he said.
Ayers agreed.
“Cryptocurrency has certainly found a place in the investment world, with the performance of the asset class creating plenty of attention,” he said. “At Stock Yards Bank & Trust, our goal is to maintain what our clients have worked hard for and earn a competitive rate of return over the long term without unnecessary risk. We cannot confidently look anyone in the eye and say cryptocurrency does not bring significant and unnecessary risk to their retirement account or investment portfolio.”
In his view, working to grow your financial portfolio with stable investments now will pay o. in the long run.
“Working with a professional to help guide you to where you want to be 10, 20 and 30 years from now is much different than taking a bet on a name you saw cross the headlines this morning,” he said. “Helping to protect clients and their portfolios from volatility is one of the most important benefits of working with professional financial planners and advisors.”