Investment Strategies For An Inflationary Environment

Career Advancement Edition

Everyone probably heard about inflation in the news and experienced it firsthand. For some, they notice it when purchasing items at the grocery store, others notice it at the gas pump. In all our purchasing activities the latest inflation surge appears to be evident. 

Historically, a two percent inflation rate has been considered a healthy indicator of a growing economy. The consumer price index for May, which tracks changes in the price of food, housing, gas, and other commodities over the previous twelve months, increased by 8.6%, reaching a 40-year high.

Higher costs on goods and services mean that consumers have less purchasing power if their income does not keep up with inflation. Rapid price increases might cause economic instability and risk many individual’s savings accounts just to live their day to day lives. Consumers’ agony is amplified by the fact that they don’t know how long or how to react financially if prices continue to rise.  

A rise in inflation has a negative impact on the returns of investors who rely on bonds for their income. Additionally, inflation can erode an investor’s purchasing power and reduce their returns if they don’t manage the impact on their portfolios. 

In this episode, we discuss how to manage your finances and what are the best investment options during a high period of inflation. Join our hosts, wealth manager Lee Michael Murphy and career advisor Sergio Patterson. Tune in to this week’s episode of The Free Retiree Show.

What you’ll learn in this episode: 

  • What is the difference between the current market and past bear markets 
  • Recommended investments strategies to combat the inflation surge
  • How to beat inflation 
  • What needs to happen for the market to recover


Lee Michael Murphy: [00:00:00] Let’s talk about where you could invest in an inflationary environment. So things that tend to do well, right? It’s really tough to find companies that are doing well in this environment, but there are some areas that you can look at if you’re looking to battle this Inflationary Environment in some Techniques. So we’re gonna go over those.

Lee Michael Murphy: Welcome into the free retiree Joe podcast episode 123. Today, we are talking about how to invest in an inflationary environment. I think this is on Everyone’s buying right now. I’m your host wealth manager, Lee, Michael Murphy, and I am alongside my pal D one, the only circle Paterson.

Sergio Patterson: What is up everyone.


Lee Michael Murphy: Thank you for tuning you to our show. So everyone has been talking about this crazy market we’re in inflation. So, sir, it’s just to start off. I mean, I remember a time not too long ago, when look decision, like when you’re gonna go spend some money and you’re like, okay, this is a bad time to spend money. This is a bad purchase. Like when you’re going out to a nice dinner or you’re about to spend money on a nice vacation, I’m starting to feel like going to the gas station is like in that category, going to the grocery store feels like a bad decision. 

Make I bust out my wallet. I’m like, this is a bad decision. I just turn away. I look away. I just have Kimberly, literally we’re at Costco the other day. And I just walk away and I don’t know how much we spent, but I know I don’t wanna look at the receipt.
Yeah. It just, it gives you that feeling right. Every time you’re like, this is bad, but yeah, we just, my wife and I, we just came back from Vegas the other week and went out there for her birthday. I had a great time, but you know, just from the moment we touched down, we noticed the difference from the taxi ride to the resort, buying a drink, buying some food, everything felt different from the last time we went and we hadn’t been in a few years, but it was substantial. The little bottles of water that they sell you in the hotel. That’s in your said at aria. Oh, that’s a good one. All right, love it. Nice one favorite. But they always say like, don’t get the food in the room, but you know, my wife was just like, I’m just so famished and parched. I needed this water.
They’re like, don’t do it. Don’t do it. That like Fiji or like whatever. You’re right. It was exactly Fiji water. It was Fiji water about, I think, 12 ounce bottle. What do you think the price was that they were charging? Ooh, I just Googled what the inflation rate is. It’s over eight. So what is it? 12 bucks for bottle of water. I mean, out of the hotel, I’m not sure what the cost was before. COVID I know it was expensive, but what do you think? What’s your guess? Let see how pushing gets it. The price is so wrong in this game that we’re $11, 11, 25 freaking dollars for one bottle of water. Wow. Granted, the resort’s job is to screw you anytime you spend money, but it was a bit egregious knowing that we could go broke on buying Fiji water, just kind of a sign of the times, right?
Like you’re feeling it, everyone’s feeling it everywhere. Yeah. And so for today’s episode, we’re gonna be talking about how to invest right now in this inflationary environment. There’s like so many areas you’re looking at and they’re all getting decimated currently. We’re also gonna talk about the impact of the inflationary environment, how it’s impacting each different sector. We’re gonna talk about how is this bear market that we’re currently in this downturn? How is it different than the ones that we’ve had in recent years? I think that’s a great thing that we’re gonna go over today and we’re gonna talk about what areas in session environments tend to get hit the heart of. So those are all things we’re talking about today. But before we started recording the podcast surgeon and I were looking up the inflation 8.6 currently, roughly around there at this point in time, insane.
I mean, what we’re trying to look for when we’re looking for like a healthy economic environment, we’re looking for anywhere between two and three, that’s kind of what the fed targets, but right now things a bit outta control. But you know, one positive note is things that we’re seeing right now is inflation is at least slow coming down a tad. So hopefully they can get it under control in the near future. But things go a little bit rough right now. Yeah. This is tough, cuz we’re gonna get into it in a future episode. But you think the typical raise that someone gets every year, right? Yeah. It’s almost like, it’s almost like our we’re losing money or like our moneys just not going as far now. Yeah, exactly. Right. So if like you were at this company for a long time and they haven’t given you a pay rate, you gotta be like WTF.
Like let’s like I’m losing money. So yeah. We’ve talked about that before when inflation wasn’t as crazy as it is right now. But I think if your employer, hasn’t given you a little bit of a boost during this whole pandemic, you gotta really look in the mirror and say like, am I at the right spot? Because they obviously are not trying to take care of me, but just to go over some more like inflation rates, let’s talk about vehicle prices, surge, like year over year, what’s the percent increase you think on, uh, vehicles. So I did a little research on this like a year ago when I bought a car and I know it’s like, I wanna say between 30 and 50%, I know it’s a big gap range, but it was somewhere in that range. I feel like an increase in price. Right. So that might be for like new, new did shoot up quite a bit.
I was looking at new cars right there. Yeah. So I think you might be in the right ballpark for used vehicles. That’s the stat I got is they’re up 16 over the past year, which is crazy. Right? Like, just think about depreciating assets doing that is unreal. Food cost year over year. What do you think we’re at? All I know is we let, when we leave Safeway in Costco, Kimberly’s like, Hey babe, like we gotta buckle down. Cause it’s like 3, 4, 500 bucks sometimes. I don’t know, like 10, 12%, something like that. Geez. Yeah. You’re right. The 10.1 spot on. Okay. Yeah. I, yeah. I mean you get, tell a little Darren and Keana, like we’re gonna divide those little fruit snacks in half, ration them out over the week. One little. That’s a good idea. One little fruit snack bite a day. I dunno. Darren will be happy.
He likes the pizza snacks. <laugh> all right. The big one. This is the last quiz question. You’ve aced it so far surge. So fuel prices over the 12 months, what do you think that has done? I haven’t been to a gas pump in a long time fells. That’s right. Yeah. I mean, you’re not like attorney me like just washing his Hummer every day, but can’t drive it. Are you saying national or in the bay area? National numbers. 40%. So fuel and oil over 12 months, 106.7. You’re Tesla guy. Now you’re above all this other common folks, but just really interesting to see how everything has changed so quickly and the difference one year makes so all things to think about. So let’s talk about how is this bear market different than ones that we’ve been in the past. In the past, we felt that if you had a downturn you bought in, things were covered quite quickly.
Right? Right now, since the start of year, you’ve seen a lot of, uh, sectors go down the general market go down and it’s only really just kind of, it’s gone. You’ve had some good days, but more bad than good. Yeah. And you see that everything kind of just going down. So one thing that we have to look at is where the interest rates are at. So we’re at, we have highest higher interest rates right now. So what that means is before, when we had downturn, when you have lower interest rate environments, things generally can recover a little bit quicker. The difference in the current environment right now is with higher interest rates, the recovery times are gonna take longer, right? Cause you don’t have that juice to help turn everything around now looking in for the long haul, I’m a big believer and you continue to buy assets that are high quality because this too shall pass.
But you know, warning, if you’re someone that’s like always throwing money in expected to immediately to turn around, that’s not the environment we are in right now. So take note that this is just different. Yeah. And on your, you mentioned the interest rate, I’m looking it up right now, over 6% for we’re talking about the mortgage rate, right? Like 30 year mortgage. Am I reading this? Right? It’s over 6% right now. Yeah. So, and think about the change of how quickly this all happened. So I will say like, people wanna know, like what’s gonna cause us to turn around. And my feeling is that, and this is what I’ve read from a lot of economists that I trust and feel like they generally have a good read. This whole market is based off of inflation. So as we see inflation start to dip down and so they have to raise these rates right now to slow that beast.
When we see that dip down, companies will have better margins. They’re probably going to have increased valuations from the dip of inflation and things should get better. That’s what I’m expecting. I think that’s what a lot of economists are looking at is like that number. But to just give you an idea of how quickly this change, if we go back about four months, you could get mortgage rates and the threes. I remember that. Yeah. And then now it’s, you’re looking at mid five up at six now. So it’s drastically different. That’s kind of insane. Like I’m wondering for people who are thinking about buying homes now, like if you get locked into a 6% mortgage rate or interest rate gonna impact your payment, like that’s gonna be significant amount of money right. Over time. Absolutely. But here’s the thing, right? So one thing you know, that I’ve always preached on this show is like people that are all about timing, right?
Like, oh this is a bad time. This we could be going into a bad time. We gotta look for the good time. All that stuff like that mindset. I really do believe holds people back from gaining wealth. Main thing is like, if you’re looking to buy a home right now, make sure financially you can do it. And now if you can make sure your debt payments are of all the debt that you have is lower than 36% of the income. Like, go ahead and get the mortgage, cuz this is, you’re buying a home. That’s an asset. That’s gonna work for you. Right? Yes. The interest rate is high, but here’s a good thing that I heard the other day. You marry the home, you date the rate. So the rate is something that you’re not always stuck with. Like you can go in there after the fact and you can do a refinance and like fridge drop you’re in a better situation.
So don’t let that prevent you from making one of the best financial decisions of your life, right? Yes. The rate is brutal, but think strategically on how you can deal with that. That’s a good call. Good analogy too. So let’s talk about the areas that get the hardest hit during the recessionary periods. Top of the list technology healthcare is right there and then consumer discretionary. So those are generally, most sectors are hit, but those tend to get hit the hardest. So like consumer discretionary, that’s like money that people, when they have a little bit extra, they spend on. So that’s like for you Sergio and Kim probably Starbucks, Ugh. You know, every day the cost of Starbucks is going up. Yeah. Well, cost of everything’s going up, but I mean shoes. So like Nike entertainment, leisurely activities, fast food automobiles that’s that’s space. So that’s what tends to get hurt.
You’re looking at stocks in that sector. You’re likely seeing some pretty bad numbers. Yeah. That makes sense. I’m thinking more about those like smaller purchases, whereas maybe it’s three, four months ago. I just click by and now, eh, I don’t need that. That’s a little much one’s purchasing behavior has changed whether you realize it now or not. It has changed probably over the last six months. If you are like the average consumer tech and health, they get decimated. And they actually, if you look at those sectors prior to the general market going down, they got hit first and they got hit hard before everything went down. Now why is that? Those areas, the companies in them, they tend to have higher amounts of debt. And when interest rates start to creep up, that makes a higher cost of debt. And so that’s one of the reasons why they go down.
But also obviously that’s the same story for a lot of companies. When interest rates go up, the cost of goods and services also go up, which starts to eat into the profits and the margins. And that just takes from the bottom line. So it’s a combination of both for those companies, but I would say the reason they got hit a little bit harder is the amount of debt and leverage that they have to start with. That makes sense. So that’s probably impacting a lot of the startups and investors who are all the different seed rounds and all that. Yeah. I mean, are you seeing a lot of other companies in the tech space? What’s the word on the street since you’re in that world a hundred percent. I know we’re gonna talk a little bit about the market in the next episode, but I’m seeing startups getting kind of killed.
I think VCs are a little bit more conservative right now with the macro conditions. Even within the big companies, we’re seeing budgets, tightening, maybe not making as many big bets right now. So yeah, we’ll get into it bets a hundred percent. It makes sense. So let’s talk about where you could invest in an inflationary environment, things that tend to do well, right. It’s really tough to find companies that are doing well in this environment, but there are some areas that you can look at if you’re looking to battle this inflationary environment in some techniques. So we’re gonna go over those. The first one that you can look at in terms of investing is commodities. Commodities tend to do very well in these types of periods. So that’s like oil or metals like gold and silver and wheat, right? All those sort of things. There’s a long list of commodities.
It’s all the stuff that we’re getting screwed at when we go to the grocery store. That makes sense. But I will say this beware when you get into this space, because right now you’re gonna find a lot of people on TikTok and YouTube being like, oh, look at this space. It’s doing so good right now. And just remember that when you’re looking at investments, I’m a big believer and you don’t go short term. Like you should not try to jump in and jump out. I don’t think it’s a good idea tax wise. And I just like to see a long term trend. That makes sense. That commodity space, if you look over the last 15 years, not that impressive in terms of what it’s done. So keep in mind, maybe you can have a little bit consult with your advisor. Maybe you can have a bit with your overall portfolio, but don’t go crazy because there’s gonna be a time when the market recovers.
And generally those will go down and they’ll get hit pretty hard. But right now you can look at it as like, all right. If I wanna soften the blow of where I’m at consult with someone, look at the commodities. When you say long term lead is that like 10 years is that longer, like longer than five years. I always look at long term as like around five years. Okay. But when I’m looking at an investment, I’m looking even longer than that, I wanna look decade. What’s the results decade over decade. Got it. Another thing we can look at when we’re battling an inflationary environment, we’ve talked about this before on other episodes is treasury inflation, protected securities or tips. These are securities that as inflation rises, they kind of combat that. So for people that are still looking more conservatively, you’re not gonna get rich off these and you’re not gonna make a ton of money, but you know, they do help in inflationary environments and they come in three different maturities, five year, 10 year, 30 year, but they’re relatively safe.
You’re still gonna have some volatility, but they’re really good for in inflationary conditions for the money that you consider more defensive in nature. Not gonna make you a ton of money, but that’s another strategy you can look at. If you’re approaching retirement, you’re becoming that free retiree that we talk about. That’s something to really look at. The other strategy you can look at is stocks. Stocks is, you know what? You got lot of discounts right now, everywhere you look now it’s red, everywhere. Sort of it it’s blood everywhere right now, but blood in the streets, blood in the streets. But you have to think about this, right? Right now don’t be the average investor. Most people right now, they’re looking at it and they’re like, I gotta stop. I’m gonna stop investing. I’m not gonna buy anything. I’m just gonna deer in the headlights. Deer in the headlights is the way to go.
Don’t do that, right? Yes. Make sure your cash flow is healthy. Your cash flow is good. That is very important. Like you have a great emergency fund in place, but then after that load up the truck, like, this is where you have to say like, all right, I know things are bad, but I’m gonna buy these secur. And I’m an investor for the long haul, right? Just high quality. Right? That’s my thing is during these times, things that are not high quality get tested and they might not ever come back. That’s why you always wanna buy high quality. So keep that in mind. That’s a great strategy. Look at the stocks that are right there in front of you make a move on that into give you a little bit more about that. Another tip that kind of builds off that is automatic investing or we call dollar cost averaging.
We’ve talked about that before. Uh, don’t be the person that’s just like, I’m just gonna put money in when I feel like, because more than likely what I’ve seen from investors is that strategy just doesn’t work. They just don’t invest. Always have a plan in place where you’re saving month in, month out to work towards not just accumulating well for the, the good times. But also it helps in the bad times because the situation is gonna hurt the most are people that say like, I’m not gonna invest anymore money right now. I’m gonna wait for this to stop because I’ve always been the person that puts in money when I feel like it. But right now the people that are on the automatic investment plan, their dollar cost averaging in they’re taking wins right now. So yeah. It may not feel like it in the moment, but yeah, they’re taking wins.
So great idea that if you don’t have an automatic investment plan, set up, go ahead. You’re saying like, let’s say they bought two years ago at like 400 a share. It’s now only a hundred. So they’re overall cost and they’re still buying in night now and they’re still buying. Yeah. Yeah. And overall that strategy should work out for them. So that’s all my tips for today. Listeners. Remember this two shall pass, hang in there. I know you feel like the sky’s falling, the click bait articles and things like this is gonna be the worst thing ever. We’re all gonna die. Ignore that stuff. Ignore it. Literally remember that the click bait the bad articles. They’re out there to get clicked, try to be levelheaded about it. And just because you see these titles, don’t
Freak out.
I’ve been seeing these titles for years and years and they’ve really not been accurate. So even on your iPhone stock feed,
You expect good quality from there. It’s not the case. Right? So remember stick to the academic principles, stick to
Academic research. Let’s look at that.
Avoid all the other stuff. Have your blinders
On. When it comes
To all the random news that’s gonna hit your feet. Love it. Good stuff, man. All right guys. Well, hope you enjoy this episode. We are signing off, but we’ll see you next time. Thank you for listening to the free retiree show so long for now.
Securities offered through securities American incorporated member FINRA,, S IC WW dot S, separate entity
Michael Murphy’s licensed for the California department of insurance license zero H 1 8 6 6.
Michael Murphy
Is a investment advisor representative with securities America advisors, a registered investment advisor. The free retiree securities, America advisors and securities corporated are separate entities. Career advisor surgery, Paterson attorney, Matt are not affiliated with securities America, advisors or securities corporated, securities America advisors, securities, American corporate, and its represents do not provide tax or legal advice. Therefore it’s important to coordinate with your tax or legal advisor regarding your specific situation. The content her in this podcast is not intended to be tax investment or legal advice and is intended as general guidance. Only. You should contact your own tax advisor, financial advisor, or attorney to answer questions about your specific situation or needs before acting upon this information. Third party source information or comments are not verified, may not be accurate and are not necessarily representative of all client or audience experience. A portion of this event was paid by a third party. The opinions of career advisor, Sergio Patterson, do not reflect the opinions of Facebook, Inc. The opinions of attorney Matt Macor do not reflect opinions of.

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