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15 Important Steps to Take to Outsmart Inflation, According to Experts

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Feeling Deflated?

As the economy battles its way back from the pandemic, suffers ongoing supply-chain issues, and deals with the shock of the Russia-Ukraine war, inflation has reared its head in a big way. Prices from the gas pump to the grocery store have skyrocketed, which can leave people feeling helpless. The Producer Price Index, which measures wholesale prices, rose 10.8% in May compared to a year ago, while the Consumer Price Index jumped 8.6% from May 2021 to May 2022, according to the Labor Department. In light of those indicators continuing to rise, here’s what you can do to stay ahead of increasing prices.

Related: How to Get Cheaper Gas as the Price of Oil Rises

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Adjust Spending and Lifestyle Habits

What costs more during periods of inflation isn’t universal — different sectors experience different rates of increase at different times. But simple money-saving strategies can help you outsmart inflation no matter what’s surging. “Cook at home more often, consider generic brands as replacement for name-brand items, use coupons and purchase discounted items, buy in bulk for items that you can easily store, and minimize prepared food delivery,” says John Pilkington, senior financial adviser with Vanguard Personal Advisor Services.

Related: Over 35 Store-Brand Foods That Deliver Quality and Savings

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Minimize Cash Holdings as Inflation Rises

It’s only sometimes true that “cash is king.” Periods of higher inflation are not the time to hold too much of it. “Don’t hold cash beyond what you need for emergency funds or to buffer against short-term market fluctuations,” says Scott Ashline, founder and private wealth adviser with Northwestern Mutual’s Private Client Group, Ashline Financial. If you hold too much cash, you’ll actually lose buying power as your money sits in the bank earning extremely low interest rates.

Related: 14 Situations Where Cash Beats Credit

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Save Money in the Right Place

If you want to beat inflation, sticking money under the mattress is not the way to go — but a traditional bank account isn’t much better for earning power (though it is safer). “Cash instruments have historically performed below average inflation, and even worse, any interest earned is likely to be taxed as regular income,” Ashline says. He recommends instead considering a money market account after assessing your risk tolerance.


Related: 11 Reasons for Consumers to Beware of Big Banks

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Review Your Progress

Taking a “set it and forget it” approach to savings is rarely a good idea. It is important to determine goals and review progress periodically. This monitoring allows you to adjust if necessary, says Meredith Stoddard, vice president of Life Event Planning at Fidelity Investments. You may discover a need to save more or change your investment strategy. When you review your progress, you can make adjustments before it is too late.


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Evaluate Your Debt Situation

Right now is a great time to reevaluate your debt, especially mortgage debt. With mortgage rates at historic lows, refinancing could be a simple way to outsmart inflation. “A low, fixed rate is an advantage to the borrower in an inflationary and rising interest rate environment,” Pilkington says. 

Related: Should You or Shouldn't You Refinance Your Home?

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Rebalance Your Portfolio

Changing times can affect a business as much as its own innovations or missteps, whether the issue is consumers opting for healthier choices than soda, a pandemic making travel overseas impossible — or people buying fewer luxury goods when money seems tight. Rethink what you’re investing in to account for the economy and what lies ahead. “Rebalancing allows you to take profits of your better performing assets and purchase those that have not performed as well, thus ‘buying on sale,’” Ashline says. 

Related: How to Salvage Your Finances During Economic Uncertainty

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Ensure Investments Are Diversified

Unless you’re a day trader, you probably can’t guarantee being able to move investments around quickly enough to account for every change in the economy or society’s tastes. That’s why you should make sure an investment portfolio has a mix of products in which some may rise as others fall. “Having a well-diversified investment plan can help you weather a variety of conditions throughout your life,” Stoddard says. Keep reading for some ways to diversify your portfolio. 

Related: Not into Stocks and Bonds? Here are 12 Alternative Investments to Consider

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Invest in Some Non-U.S. Holdings

It is difficult to predict in the long run how inflation in the United States will stack up against that of other countries. Diversifying a portfolio to include some non-U.S. holdings can help if domestic inflation is worse than foreign inflation. According to the Fidelity Learning Center, investing in non-U.S. companies provides indirect exposure to foreign currency. 

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Consider Holding TIPS

TIPS — Treasury Inflation Protected Securities — help diversify a portfolio too. “TIPS are designed to protect against inflation. When a TIPS matures, you are paid the adjusted principal or original principal, whichever is greater,” Ashline says. 

Related: Where Should Boomers Put Their Money Now?

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Assess the Risk and Reward of Holding Bonds

If you have a long time horizon for savings goals, investing in stocks rather than bonds is more likely to yield real returns. “Safer bonds are priced to yield negative real returns,” Pilkington says, offering the example of buying a 10-year U.S. Treasury Note at a 1.3% interest rate when the 10-year inflation expectation is 2% — in which case the bond will lose 0.7% in real terms each year. Past returns are no guarantee of future returns, but historically, stocks do a much better job of beating inflation than bonds. 

Related: Money-Saving Tips From Grandma That Don't Work Anymore

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Don’t Panic

Reviewing investments and other savings doesn’t mean making rash decisions when the market drops. “Investing in the stock market comes with a certain level of risk. Don’t let the short-term market fluctuations affect your financial decision-making,” Ashline says. Remember, most investments, such as those for retirement, are typically intended for long-term results.

Related: 19 Investments Better Than Bitcoin

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Be Flexible in Your Retirement Years

Housing, food, transportation, and health care costs are the four major categories retirees need to keep in mind, according to Rob Williams, vice president of financial planning at the Schwab Center for Financial Research. When one category experiences more inflation, consider cutting back or using saving strategies. For example, with transportation costs high right now, retirees may want to reevaluate or push back their travel plans. 

Related: 18 Ways the Pandemic Changed Travel

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Have a Guaranteed Source of Income in Retirement

Having a guaranteed source of income in retirement doesn’t mean you have to work forever; this category includes Social Security payments, defined benefit pensions, or annuities with adjustments for cost of living increases. Look ahead and make sure you have one or more of these plans available to you as a hedge against inflation. 

Related: 12 Ways to Get the Most Out of Social Security

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When in Doubt, Work with a Financial Adviser

If you’re not sure your savings strategy will outsmart inflation, you don’t have to go it alone. Working with a financial adviser can help you form and enact a more inflation-proof plan that’s tailored for your situation. General advice is helpful, but it doesn’t take into account your personal factors 

Related: 14 Questions to Ask Before Hiring a Financial Adviser

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Don’t Let Inflation Worries Get You Down

No one likes rising prices, but in many instances, as inflation increases, so do wages. If fears of double-digit inflation rates are plaguing you, they shouldn’t. The experts at Schwab say we’re likely facing a relatively modest inflation rate. Similarly, Pilkington expects inflation to “tick up modestly and run a little hotter than the Fed’s 2% annual target. That said, we are not expecting a runaway inflationary environment,” he says.

Related: The Price of Bacon the Year You Were Born

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