Investment strategy is a vital factor in inflation

Written by Monica Correa on June 21, 2022

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Investment strategy is a vital factor in inflation

Although it may take some time before inflation is felt on a personal and business level, higher prices are here to stay, and according to financial experts, analyzing investment strategies, maintaining cash and reducing unnecessary transaction costs can be key ways to slip away during these times.

“History teaches us that when inflation peaks, stocks usually turn positive,” said Julian A. Gualtieri, financial adviser to Morgan Stanley’s Global Wealth Management. “The world is changing rapidly and every day there are new opportunities to expand and expand business and personal wealth, regardless of the current environment.”

The peak of inflation has not yet occurred, he added, but the way it will ultimately affect residents is by raising the cost of living.

Inflation will also make things more difficult for business owners as the supplies and services they need to run a business become more expensive. “So business owners will need to adjust prices because running a business is more expensive,” he said. “However, this sequence of events demoralizes consumer sentiment.”

According to a Business.org survey of 700 novice small business owners, 50% underestimated how much they will have to spend in their first year of business to make money. According to the report, business store owners have spent about $ 100,000, with an average income of $ 105,000 in their first year.

These business owners, the article said, spent 30% of their investment on inventory, 21% on equipment, 15% on location, 12% on taxes, 7% on utilities and 6% on salaries.

Minimizing costs, more frequently organizing and analyzing balance sheets and identifying the most important factors for their business are ways in which business owners can alleviate inflation difficulties, Mr Gualtieri said. In addition, “working closely with a financial advisor, accountant or CPA to analyze variable rate loans, personal investments and business liquidity / investment management strategies” can help mitigate the effects.

The biggest business management costs for clients, he added, come down to payroll costs, which typically amount to 70% of business costs.

“You may want to assess your time, business costs, liquidity and business prospects,” he said. “I don’t think any market environment, despite catastrophic times like the 2008 recession, should stop you from embarking on new business ventures and achieving your dreams.

Lauren Anastasio, director of financial advice and a certified financial planner at Stash, said that although inflation is expected to fall, prices will not return to what they were.

“It simply means that prices will continue to rise at a much slower pace than recently,” she said. “So we have to adjust to this new reality. I think we should always be careful about what is under our control and what is out of our control. “

It is important that we still keep the money, she said. “Cash will continue to be incredibly vital, especially for business owners, to be adaptable and agile to make quick business decisions.”

In addition, finding creative solutions with creditors is a way to control costs and cash flows, she said. “Look at areas where you may be able to negotiate a contract that you haven’t reviewed in a while, or if you might be able to create your own service agreement.”

One of the main priorities for consumers, Ms Anastasio said, must be to eliminate debt at higher interest rates. Interest rates have been historically low for several years and “although we may have been comfortable carrying balance sheets and credit cards, for example, or taking out loans because money was cheap, with rising interest rates, now is the time to really eliminate debt. on things with a variable interest rate, such as the Equity Credit Line (HELOC), to reduce the cost of our loans, but also to free up cash flow and eliminate these payments.

Another useful practice, she continued, is to review credit card bills or check account statements every few months to analyze costs and try to identify unnecessary ones that can be eliminated. “It’s time to look a little deeper into spending to try to curb things.”

“Each person must have an individual financial plan that can be prepared by a financial advisor,” said Mr Gualtieri. This would include an analysis of budgets and expenditures, an outlook based on the expected economic environment, an analysis of asset allocations based on the current real estate and financial markets, retirement or lifestyle goals, and an investment strategy to mitigate inflation and achieve your goals, both long-term and short-term. “

The cost of living and the family, such as a mortgage or education for children, must be organized in a structured budget in order to maintain the same level of quality of life, Mr Gualtieri added.

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