This is the fourth installment in an ongoing series where Marc Bautis, Wealth Manager and Founder of Bautis Financial, comments on hot topics in the financial industry. Marc is joined by Kayla Waller, Bautis Financial’s Paraplanner.
How Much Money Do You Need to Be Wealthy?
Schwab recently published their 2021 Modern Wealth Survey, in which they found that most Americans categorize “wealthy” as having a net worth of nearly $2 million. That’s actually less than the net worth of $2.6 million that Americans cited as the threshold in 2020.
The question is somewhat meaningless as there are many factors that go into feeling wealthy, including: personal preference, age and where someone lives, but it reminded me of a quote from one of my favorite books: Simple Wealth, Inevitable Wealth by Nick Murray. In the book, Murray states, “No matter how much money you have, if you’re still worried, you aren’t wealthy.”
Wealth means different things to different people. It’s not just your salary, or your net worth, or how many things you own.
In our engagements we try and focus on not just managing money or hitting your goals, but also obtaining peace of mind and fulfillment.
The Federal Reserve Is Sticking to Its Story on Inflation
There is little debate that the economy is heating up and that over the past two months, we are seeing more of an uptick in inflation than expected. The table below lists overall inflation numbers, but if you have tried to purchase any of the products or services below, you’ve directly felt inflation.
- Auto rentals rose 12.1% in May following a 16.2% rise in April.
- Airline fares increased 7% after a 10.2% rise in April.
- Used cars rose 7.3% which was on top of a 10.0% increase.
- Furniture jumped 2.1%.
- New cars surged 1.6%.
- Apparel rose 1.2%.
What is up for debate is whether the inflation will be transitory (temporary), or if it will be something ongoing. In their much anticipated meeting on Wednesday, the Fed was steadfast with their comments that they expect inflation to be temporary. However, they did state they will now issue two rate increases in 2023. Previously, they had not planned to increase rates until 2024. Rate increases are a tool the Fed uses to combat inflation.
What Asset Classes Tend to Hedge Against Inflation
If we’re going to face inflation long-term, the next question is what asset classes tend to hold up well in inflationary periods? Here are three that fly under the radar as inflation hedges.
- Rental real estate: Rents have risen the highest in 15 years. Expenses on your property will rise during inflationary periods, but usually rent income will rise faster, especially if you have a fixed rate loan on the property.
- IBonds: Jason Zweig, a prominent writer for The Wall Street Journal, wrote a recent article on the benefits of I Bonds especially when compared to their cousin Treasury Inflation Protected Securities (TIPS).
- Dividend Stocks usually underperform when the economy goes through high growth periods, then tend to outperform during periods of inflation. You don’t just want to invest in companies with high dividends. Look for companies that are increasing their dividend every year, faster than the rate of inflation.
Return to the Service Sector
Commentary by Kayla Waller.
In May, retail sales declined by 1.3%. People are now paying less for physical products and more for experiences. For instance, restaurant sales have surpassed grocery sales, marking the first time since March of last year. This will hopefully help alleviate the pressure on supply chains.
This also demonstrates that people are beginning to enjoy experiences that they could not during the COVID-19 pandemic, like traveling and attending concerts.