The Elephant in the Room

How big a deal is inflation, and how can you protect your portfolio against it? [Morningstar](?utm_source=eloqua&utm_medium=email&utm_campaign=newsletter_improvingfinances&utm_content=37380&elqTrackId=cff5e790cc0347b4b8de0bdf446c1264&elq=9e2f4590182949b281129d65f620c5ed&elqaid=37380&elqat=1&elqCampaignId=17510) [Improving Your Finances] Improving Your Finances with [Christine Benz]( [Christine Benz] Inflation shows no real sign of abating, based on the most recent reading of the Consumer Price Index. Though some economic observers had been expecting that prices would begin to ease thanks to the Federal Reserve’s aggressive round of interest-rate increases, CPI jumped 9.1% in the one-year period ended June 30. Morningstar’s chief U.S. economist Preston Caldwell thinks [inflation will begin to show signs of easing in the next CPI reading]( (through July 2022), but the June number was still the highest inflation reading in more than 40 years. Food, rent, and gas prices were the key categories driving that increase—in other words, the very basics that we all need to live our lives. Yet I still think it’s worth considering your personal inflation situation based on your own spending. I’ve been affected by the increases in food prices just like everyone else, but as a homeowner who doesn’t drive a lot, I’m unaffected by rent increases. Higher gas prices haven’t had a big impact on our household budget, either, especially given still-curtailed commuting schedules. On the other hand, renters who drive a lot are no doubt hurting. [This article]( coaches you on calculating a customized inflation estimate based on your own household’s spending and the level of inflation in each of those categories. In addition, it’s wise to consider how protected your portfolio is against inflation. My colleague Margaret Giles provided [a helpful discussion of investment types that confer inflation protection]( and even named some specific mutual funds, ETFs, and stocks for the job. My bias is to keep things pretty simple: Everyone should hold ample equity exposure, as stocks have outrun inflation historically. Meanwhile, retirees who are actively drawing upon their portfolios should maintain an ongoing allocation to I Bonds and Treasury Inflation-Protected Securities. In the latter category, Vanguard Short-Term Inflation-Protected Securities has long been my go-to for [my model portfolios](. Finally, inflation is but one of the worrisome trends facing retirees today, along with falling stock and bond markets. For a positive but still sober look at the landscape for new retirees, I’d recommend [the interview that Jeff Ptak and I recently did with Justin Fitzpatrick]( co-founder of a retirement software program called Income Lab. He pointed out that in contrast with entities with fixed liabilities, such as insurance companies, retirees can more readily adjust their spending and they can also adjust their goals. There’s no shortage of doomsaying in retirement planning today, so I appreciated Justin’s practical, positive take. I hope that you’re making the most of this summer! With warm regards, Christine [How Worried Should You Be About Inflation?]( Your personal spending and inflation rate likely vary from the Consumer Price Index. [Read More]( Share: [facebook]( [twitter]( [linkedin]( ADVERTISEMENT [media]( [media] [Justin Fitzpatrick: 'Retirees Have a Superpower']( The co-founder of retirement-software provider Income Lab says that older adults can take a few simple steps to ensure that their assets last throughout their lifetimes. [Listen Now]( [401(k) Statements May Surprise Investors in July]( Here’s how to put depressed account balances and the new lifetime allocation illustration into perspective. [Watch Now]( [Which Investments to Keep Out of Your Taxable Account]( Sizable mutual fund capital gains distributions illustrate a simple fact: Some investments are structurally a poor fit for taxable accounts. [Read More]( Listen Now Get the latest investing insights and market updates with [Morningstar’s podcasts]( available on your iPhone, iPad, Android, PC, or smart speaker. Stay connected: [twitter]( [facebook]( [linkedin]( [instagram]( [YouTube]( [Apple News]( [View online]( | [See all newsletters]( | [Share your feedback]( [Unsubscribe]( from this newsletter. Or update your [email preferences](. © 2022 Morningstar, Inc. All Rights Reserved. 22 W. Washington St. Chicago, IL 60602