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Inflation is retreating, but advisors and economists know that inflation data is year-over- year, meaning we’re, ominously, a long way from the “good ol’ days” seen just a few years ago.
The other tough lesson that’s been learned over the past couple of year is that inflation wreaks havoc on portfolios. Just look at what happened last year. Bonds and stocks fell in unison as the Federal Reserve aggressively raised interest rates to fight inflation.
Last year’s spike in inflation was akin to blunt force trauma to clients’ retirement expectations and goals. Advisors have likely had plenty of conversations this year on this issue and it’s certainly one reason why clients are admitting they need advisors.
Advisors know it and clients are learning that not only does inflation pinch retirement income, it forces clients that are nearing retirement and those actively planning for it to reassess their expectations. In other words, it’s not surprising that in 2023, investors believe they need more money to have a comfortable retirement than they did last year. However, there’s a silver lining: Inflation is making clear that it’s hard for ordinary investors to go it alone, confirming the value in working with financial professionals.
Inflations Proves Value of Advisors
Typically, inflation isn’t the primary reason a prospect becomes a client. Then again, most clients haven’t had to worry about dramatic inflation for years or decades and younger clients haven’t had to worry about it all. Until recently. That means a lot of folks aren’t well equipped to do deal with it and some are pessimistic about when inflation will abate.
“About 41 percent of experts believe that inflation won’t settle in at the Fed’s 2 percent goal post until the end of 2025, according to Bankrate’s third-quarter Economic Indicator poll,” according to Bankrate.com.
Strategies and tools are need to adequately beat inflation and while some of those concepts are readily available to all, many clients don’t have the expertise or time to locate them. Advisors do and they are the experts. In this case, expertise is equivalent to value.
“Financial advisors use retirement planning software to look at alternative scenarios for your portfolio based on different inflation rate assumptions. These programs offer more precision and nuance than an online retirement calculator, or calculations you might do on your own,” adds Bankrate.
Math Proves Advisors’ Value
Take a look at the chart below. If you’re an advisor, consider showing it to prospects. If you’re considering hiring an advisors, look at it and mull the obvious difference. It illustrates 20-year returns at 3% annually working with and not with an advisor.
Chart Courtesy: Bankrate.com
Point is, advisors can help in any environment and that thesis is all the more credible when inflation is high, as it is today.
“Working with a financial advisor can help better position your portfolio to withstand the current inflationary environment without drastically altering your plans. An advisor can run projections to ensure you’re still on track to meet your goals, and suggest adjustments if your portfolio is particularly vulnerable to inflation,” concludes Bankrate.
Related: The Issues That Make Clients Cringe