Inflation is at its highest for 40 years. 10 pro tips for investing and saving

Inflation is high. Here’s what the money pros say to do about it.

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On Wednesday, the Federal Reserve approved its largest interest rate hike since 1991, signaling that it wants to control inflation. And indeed, the latest Consumer Price Index data showed that the inflation rate in the United States rose again in May to 8.6%, a 40-year high. There is no doubt that high inflation makes investors and savers anxious about what to do with their money. So we asked the experts how consumers should think about investing and saving in this time of high inflation.

1. Invest wisely in your employer-sponsored retirement plan and brokerage account

Investment is key to fighting inflation: for example, the average annualized return on the S&P 500 is around 10%, according to the data. That’s why Stephen Carrigg, Certified Financial Planner and Private Wealth Advisor at Integrated Partners, advises investing in your company’s retirement account and “opening a brokerage account for additional savings that you can consider as your mid- to long-term savings and take advantage of compounding,” says Carrigg. Financial gurus Suze Orman and Ramit Sethi have also stressed the importance of investing to fight inflation.

It’s important to make sure you have a diversified investment portfolio, adds Carrigg: This means a portfolio made up of varied assets like stock funds and bond funds so that your exposure to one type of asset be limited in the event of a slowdown. Read our MarketWatch Picks guide to diversification here.

2. Consider the TIPS

Treasury Inflation Protected Securities (TIPS) are government bonds that protect you against inflation. “The principal of a TIPS increases with inflation and decreases with deflation, as measured by the consumer price index,” the government explains.

3. Weigh real estate and commodities

Grace Yung, a certified financial planner at Midtown Financial Group, told MarketWatch Picks that “tangible assets such as real estate or commodities are also a consideration” during times of inflation. As Morningstar recently noted on the commodities front, “In 2021, natural gas, oil and broad commodity baskets have led the commodity universe in terms of year-to-date returns. , during a period of rising inflation fears.” And on the real estate front, it’s something Warren Buffett has also embraced as a way to deal with inflation.

4. Consider value stocks in consumer staples

Snigdha Kumar, head of product operations at Digit, says investing in things like food and energy – which are always in high demand – is a smart choice because commodities are essential and the companies selling them have the possibility of setting higher prices while riding the wave of inflation.

5. Seek tax efficiencyIEC

“Look for tax efficiency in your brokerage account, which will help fight inflation,” says Carrigg. To maximize tax efficiency, investments that tend to lose less of their tax yield are better suited to taxable accounts, while those that lose the most of their tax yield should be designated in tax-advantaged accounts. Essentially, if you want to keep more of your money, tax-efficient investing will reduce your tax burden, meaning you pay less on what your investments earn. “Open a Roth IRA and maximize it because tax-free accounts can be very valuable,” says Carrigg.

6. Look at companies that can raise prices relatively easily without harming the business

Warren Buffett has long been a proponent of investing in companies with low capital requirements, especially in times of inflation. Look for companies that have “the ability to raise prices quite easily,” Buffett also wrote. If you can invest in a company that can raise its prices without any loss of revenue, Buffett encourages you to do so because it creates profits.

seven. Don’t keep excess cash on youD

“If you are someone who keeps a large amount of cash on hand beyond what you might need for an emergency fund, then you should consider investing the excess. The stock market is down right now, but over an approximate long period of time, this investment can earn a much higher interest rate on the stock market than on a savings account,” says Chanelle Bessette, Banking Specialist at NerdWallet.

8. That said, don’t neglect your savings

An emergency fund is essential: “Open a savings account and put three to six months of expenses into it that are left over in cash and only for emergencies,” says Carrigg. Although most rates on savings accounts are low, “earning interest is much better than earning nothing at all, so for this reason consumers should keep an eye out for online savings accounts at high yield that tend to offer rates much higher than the industry average,” says Bessette.

And you may also want money to save for the short term. “Consider a certificate of deposit (CD), but don’t chase yield by investing in a maturity that exceeds how long you can really live without money. There is not enough return to justify the stretch and the early withdrawal penalty more than eats up the difference,” says Greg McBride, chief financial analyst at Bankrate.

9. Take an in-depth look at what you spend and how you can save

When inflation is high, you’re often hit with higher prices everywhere from the grocery store to the gas pump. So keep an eye on your budget and follow a spending plan to track your funds each month. If you’re spending money in nice but maybe not essential places, pausing or suspending that kind of spending can lead to savings in unexpected places.

ten. don’t panic

Yes, inflation is high, but if you invest, cut costs where you can, and avoid badly inflated items (if possible), you’re ahead of many others.

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