Keep an eye on inflationJoe Wirbick
It seems like the economy just might be pulling itself together, at least in the near term. And with any good recovery, we are seeing inflation creep up.
The Bureau of Labor and Statistics, or BLS, on Friday reported that the Consumer Price Index, or CPI, rose by 0.4 percent last month, and by 2.9 percent over the last 12 months. CPI is a measure of the average change in prices over time of goods and services purchased by households. Unfortunately, our wages have not kept pace, seeing only a 0.1 percent increase last month.
So when adjusting for inflation, we still are behind the CPI by 0.3 percent and have lost 1.1 percent in real wages over the past year.
This seems to be a trend over the past few years. Our earnings have not, and might not, continue to keep pace with the reported inflationary rates. Unfortunately, true numbers are rarely reported.
Take health care costs, for example. By 2009, 18 percent of the GDP contributed to health care costs, yet the BLS reports only 6 percent in its CPI calculation. As the price of health care has shot up over the last 20 years, the BLS seems to think we are using less of it. In my opinion, this makes financial advisers’ jobs more difficult when trying to calculate the true cost of inflation on a portfolio.
All this reminds us of our growing concern that we as consumers have less money for food, gas, health care and the all-important savings that we know we need if we want to retire at some point in the near future.
That’s why it is important to keep saving, even when things around us are getting more expensive. Investors' goals should be to find a portfolio that matches their risk tolerance and beats inflation —now and in the future. From early on in my career, the biggest complaint I have heard from retirees was how quickly the spending power of their pensions was eroded in the face of inflation over the years.
Like many of my colleagues, I recommend keeping a balanced investment portfolio as opposed to focusing solely on the more aggressive side of the market. Bonds were often regarded as low-risk positions in investment portfolios, and we have seen many of them perform well over the past two years. But investors should be wary if bonds start performing like stocks and have to remember that past performances of investments are no indication of future results.
To start planning for a successful retirement, get on a disciplined savings routine now, and consider meeting with a professional investment adviser. Even if inflation continues to beat our wages, the goal should be to grow our savings to outpace it.
Joe Wirbick is president of Lancaster financial services firm Sequinox and specializes in retirement planning and distribution. This allows him to concentrate on developing strategies that help address the unique issues that confront retirees and those approaching retirement.
Tax advice provided for informational purposes only. Tax returns should be completed in conjunction with a qualified tax professional. Sequinox Financial and JWC/JRAG do not offer tax advice and are not affiliated. Mr. Wirbick is an Investment Advisor Representative offering advisory services through Jonathan Roberts Advisory Group and securities through J.W. Cole Financial, Inc. Member FINRA/SIPC. The opinions expressed are those of Mr. Wirbick and based on information believed to be reliable but not guaranteed and subject to change and do not necessarily reflect the position of JWC/JRAG.