Inflation’s Improbable Benefits for Investors

Workers had to choose between an emergency fund stashed into a savings account with negligible interest versus funding retirement accounts, like Roth IRAs, many opted for the Roth accounts. That meant any emergencies had to be paid on credit or borrowed from the Roth accounts. “Borrowing” from a Roth IRA can have seriously negative implications if that money doesn’t get paid back.

Inflation has most people inflamed. Many analysts have worked hard to identify when inflation may peak. Many have also worked hard to protect their clients’ investment portfolios from the impact inflation has had on the stock market. It may seem silly to suggest that there is an upside to inflation. But it isn’t insane to think of how to position investments to benefit from inflation. Advisors and investors may want to consider if any of these potential upsides could help position their investments to achieve their retirement goals.

We know there is a lot of bad news when it comes to inflation. We aren’t suggesting that the current economic climate in the U.S. is rosy. In fact, for a lot of people the forecast is bad with an increasing chance of rapid deterioration. “Inflation is causing the sharpest decline in real wages in decades, as the chart above shows. Even in a robust jobs market, the typical worker ends up financially worse off with every month that passes.”[1]  Cost of living increases in many major markets has surpassed 10%. While some public figures, most prominently President Biden, have tried to promote silver linings they may be falling flat. Biden noted that the cooling in commodity prices may have a similar dampening effect on future inflation. Commodity price drops may literally help Americans keep cool as energy prices begin to lever down, right as summer’s heat wave knocks us all to our knees. While positive, that isn’t the investing upside of which we noted. Instead, inflation’s biggest potential could be in what can be gained from it.

Firstly, savings accounts. We’ve written countless articles about the importance of an emergency account.[2] Recently, options for most folks for an emergency account were poor. Since 2010 the interest rates on savings accounts have been below 0.10%. Literally finding random change on the street was better than what could be earned on a savings account. This was a sharp change from previous rates. Thirty years earlier the interest rates on savings accounts were regularly above 2or 3%.

For the last decade, people have often had to choose between stashing savings for an emergency fund into a savings account or funding retirement accounts, like a Roth IRAs. With savings accounts offering literally miniscule interest rates, many opted for the Roth accounts. That meant any emergencies they encountered had to be paid via credit or borrowed from the Roth accounts. “Borrowing” from a Roth IRA can have seriously negative implications if that money doesn’t get paid back.

Now, savings accounts offer interest rates that are attractive. That means emergency funds can go back into accounts where they should be, like savings accounts that are liquid and immediately accessible and have little or no penalty for withdrawals that don’t get repaid. In the Summer of 2022 thanks to inflation, accounts are finally rising above 1%: Ally bank has accounts at 1.25% interest; and SOFI has accounts at 1.5% interest. Having an emergency account that gains interest is a positive thing that is directly related to inflation. Similarly, some government bonds are offering low-risk investments now have more attractive rates. Newer investors, or those with less capacity to invest may want to reconsider how they have arranged their emergency funds.

Second, job stability. Inflation costs may also have a positive impact on jobs. Inflation may clear out so called zombie companies (and may cut other jobs). This set of events may free up investing and loans for other companies. Smaller companies needing capital will have better access to it without the zombie companies populating the competition. Increased investment in small growing companies may lead to stronger more stable jobs. This could be a benefit to investors who can find new opportunities for long term growth in smaller companies.

Inflation’s rising costs may also create jobs in an unexpected way. As costs rise on imported goods, consumers who in the past chose price over buying from local manufacturers may see less of a price differential between goods. Just as many consumers became willing to pay more for locally made goods to avoid unpredictable shipping dates, many consumers may now be able to opt for goods made by domestic companies if inflation is also squeezing production abroad. This in turn may create jobs. It also creates investing opportunities. Long term job stability may create investing opportunities in other areas, or could shift investing strategies that took job instability into account.

Third, international trade policy. Inflation could cause a few changes to international policy. If politicians are looking for ways to decrease consumers’ costs, there are a few places where they can do so by policy alone. First, the White House has indicated that it might end the tariffs on the import of Chinese goods instituted by the previous President. Analysts theorize by doing so, President Biden could reduce the double-digit consumer price index by 1%.[3] Similarly, in February of 2022, the White House announced an effort based on research by the Kansas City Fed that showed a unified effort by shipping companies to raise rates. The effort will, among other things, increase competition in the shipping industry. Competition could reduce prices, which could then create profitability. In all, this means there are opportunities for investors in domestic products and profitability.


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These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.

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