While the government numbers have just started to show up the rise in inflation, you and I know that it actually creeped in a long time back.
“When vegetables and fruits sell per piece instead of per kilo.”
This is not just an India phenomenon but almost everywhere. The recent US inflation number at 6.8% turn out to be closer to the one observed 40 years ago. The Fed is concerned and has indicated it will need to take steps towards it.
Markets are jittery, around the world.
And portfolios too.
You know for a while, everyone felt that markets can only go up. Even the most conservative wanted the piece of the market, by the kilo.
It was like being in a fairy tale.
I am afraid this tale has a lot more to go (not so good) before it reaches its perfect end.
The old enemy, inflation, is here to hit your real purchasing power and your portfolio, ‘real’ hard.
How does that translate for your money and investments?
This chart with the current volatility should give you an indicator of how.
Volatility is still an unknown concept for many new investors and I am sure the feelers have started to come in.
What should you do?
Well, for starters, please push the inflation assumption in your retirement plan back to 8% or more (from the current 4% and 6% that you are using).
Next, use diversification. Choose a basket of investments that can take you through the unprecedented times that we are in.
Frankly, we can never know it all. That’s exactly the point why we need diversification – it’s the insurance against the unknown.
Don’t believe me!
Check it out for yourself with the asset allocation tool here.
Go back in time to see how diversification (or the lack of it) along with rebalancing would have made a difference in the portfolio outcomes.
More: This is how you use the asset allocation tool
Check how it can help you keep your sanity and portfolio intact right through the phases of FUD – fear, uncertainty and doubt. (Hi, Crypto!)
To get you started, you will find some ready ideas as well such as “Is this Rajeev Thakkar’s model portfolio” or “Passive long term growth”.
If you still need to learn more or understand this better, write to me.
This is a lesson that you can’t ignore to learn. The sooner, the better.
For new investors:
- To be in markets is like to be in liquid oxygen. The liquid (volatility) won’t let you live, oxygen (hope) won’t let you die.
- There are old investors, there are bold investors but there are no old, bold investors.
- Diversify! Rebalance!
Beyond Greed and Fear: What is the market telling you now for your asset allocation?
Proper and tactical asset allocation is the key here. Inflation is back and this means that savings will be even worse. It is better to stick to assets which can beat inflation.