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Investment strategy is a key driver of inflation

Written by Monica Correa on June 21, 2022


Although it may take some time for inflation to take hold on a personal and professional level, higher prices are here to stay, and according to financial experts, analysis of investment strategies, making cash available and reducing unnecessary operating costs could be key ways to get back on track. during these periods.

“History teaches us that when inflation peaks, stocks generally turn positive,” said Julian A. Gualtieri, financial adviser to Morgan Stanley’s Global Wealth Management. “The world is changing at a rapid pace, and there are new opportunities every day to grow and grow the wealth of businesses and individuals, despite the current environment.”

The peak of inflation has not yet arrived, he added, but it will eventually affect residents by raising the cost of living.

Inflation will also make it more difficult for business owners as the supplies and services they need to run a business are becoming more and more expensive. “So business owners will have to adjust prices because running the business is more expensive,” he said. “However, this sequence of events is demoralizing consumer sentiment.”

According to a survey of 700 newbie small business owners, 50% underestimated how much they would need to spend in their first year of business to make money. According to the report, storefront business owners spent about $100,000, or an average first year income of $105,000.

These business owners, according to the article, spent 30% of their investment on inventory, 21% on equipment, 15% on location, 12% on taxes, 7% on utilities and 6% on payroll.

Minimizing expenses, organizing and analyzing balance sheets more frequently, and identifying the most important factors in their businesses are ways business owners could ease inflation challenges, Gualtieri said. Additionally, “working closely with a financial advisor, accountant, or CPA to analyze variable rate loans, personal investments, and business/investment cash management strategies” could help mitigate its effects. .

The biggest cost of running a business for customers, he added, comes down to payroll costs, which typically account for 70% of business expenses.

“You may want to assess timing, business expenses, liquidity and your outlook for the business,” he said. “I don’t think a market environment, despite catastrophic times like the 2008 recession, should stop you from starting new ventures and realizing your dreams.”

Lauren Anastasio, director of financial advice and certified financial planner at Stash, said while inflation is expected to ease, prices will not return to what they were.

“It just means that prices will continue to climb at a much slower rate than they have recently,” she said. “So we have to be comfortable with adapting to this new reality. I think we should always be aware of what is in our control and what is out of our control.

It’s important to keep cash, she said. “Cash is going to continue to be incredibly vital, especially for business owners, who need to be adaptable and nimble to make a quick business decision.”

Plus, finding creative solutions with lenders is a way to control spending and cash flow, she said. “Research areas where you might be able to negotiate a contract that you haven’t revisited in a while, or where you may be able to create your own service contract.”

A top priority for consumers, Ms. Anastasio said, should be to eliminate higher-interest debt. Interest has been historically low for several years, and “even though we were comfortable carrying balances and credit cards, for example, or taking out loans because the money was cheap, with rates rising interest rates, now is a time when we really want to eliminate debt on variable interest rate things, like a home equity line of credit (HELOC), both to reduce the cost of our borrowing, but also to free up cash flow and eliminate these payments.

Another useful practice, she continued, is to review credit card bills or check account statements every two months to analyze expenses and try to identify those that could be eliminated. “Now is the time for us to take a little deeper look at spending to try and get things under control.”

“Each person should have a tailored financial plan that could be prepared by a financial adviser,” Gualtieri said. “This would include an analysis of budgets and expenditures, an outlook based on the expected economic environment, an analysis of asset allocation based on the current real estate and financial market, retirement or lifestyle goals, and a strategy investment to mitigate inflation and achieve your goals, both long and short term.”

Living and family expenses, such as a mortgage or children’s school fees, should be organized into a structured budget to keep the same level of quality of life, Gualtieri added.

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