Understanding the Impact of Inflation in Investment Strategies

Investors have dealt with a myriad of potential issues relating to the market – including inflation. We can understand that inflation is economy-wide, with a sustained trend of increasing prices from one year to the next.1 Inflation can also indicate to investors exactly how much of a return (in percentage terms) their investments need to make to maintain a desired standard of living.

Looking back on 2022

If inflation is cooling in 2023, what comes next? Some people are finally experiencing relief from the rise in living costs after a few false starts in 2021 and early 2022.2 For 6 straight months in 2022, inflation slowed, dipping to 6.5 percent after peaking at around 9 percent in the summer of 2022.2 While prices have remained higher than the past and are not back to “normal,” they steadily slowed for the last 3 months of 2022.2  However, some cost of goods and services still remain high, affecting how far a dollar can go. Many investments that may have been previously considered to be worth a certain amount could be less in real terms if they do not generate returns that match or exceed the rate of inflation.2 As of January 2023, many economists and Fed officials estimate it will take years for the price increase to fall back down, while some on Wall Street believe inflation could drop sharply and possibly return to historically low levels.2 A forecast in a Bloomberg survey of economists states that they expect consumer prices to remain at or above 5% until the end of 2023.2

No one can predict the future. “All of the knowable and predictable information is already in the price today,” says Mark Matson, Founder and CEO of Matson Money. “Stocks are forward-looking. The market is forward-looking. It is only the unknowable and unpredictable things that change prices moving forward.”

We’ve created 3 key points to keep in mind as it relates to your investment strategy and the potential impacts of inflation:

1. Consider inflation when setting financial goals: When setting financial goals, such as saving for retirement or buying a home, be mindful of the impact of inflation on your purchasing power and factor it into your projections. In 1971, if you had $28,000, you could have purchased a home free and clear; fast forward 52 years to 2023 and you would potentially need 15 times that amount and if you look ahead to 2030, the price tag may keep getting bigger.3

2. Diversify your portfolio: Diversifying your investment portfolio can help to minimize the impact of inflation on your investments, as different types of assets may be affected differently by inflation. Having a financial coach who knows how to help construct a diversified portfolio with a desired risk tolerance can help keep investors prudent and disciplined for a lifetime.

3. Monitor inflation: Keep an eye on the inflation rate and be mindful of how it may impact your financial goals and investment strategies. It is hard not to experience amplified concerns surrounding your investment portfolio and not succumb to any number of investor biases. If you are looking to use performance history, predict the future, or pick a “winner”, that is merely speculating and gambling with your money like going to a casino or playing the lottery with your life savings. Consider having a financial coach who can help guide you to make choices aligned with pre-determined long-term financial goals.

It’s important to remember that inflation is just one of many factors to consider when it comes to your financial future. Having a financial coach who can help you understand and develop an investment strategy that aligns with your goals and risk tolerance can be the difference between being prudent and disciplined versus making potentially destructive choices around your money. Additionally, investors can engage in on-going education by attending investing seminars like Matson Money’s 2-day educational event, the American Dream Experience where they can learn about the science of investing and have an open conversation about what often goes undiscussed for families: their financial future.

“History is precise on this,” says Mark Matson. “No one can tell you where the next 20% movement is going to be – whether it’s up or down – but we know throughout history the next 100% is up.”



This content is based on the views of Matson Money, Inc.  This content is not to be considered investment advice and is not to be relied upon as the basis for entering into any transaction or advisory relationship or making any investment decision.  

This content includes the opinions, beliefs, or viewpoints of Matson Money and its Co-Advisors.  All of Matson Money’s advisory services are marketed almost exclusively by either Solicitors or Co-Advisors.  Both Co-Advisors and Solicitors are independent contractors, not employees or agents of Matson.  

Other financial organizations may analyze investments and take a different approach to investing than that of Matson Money. All investing involves risks and costs. No investment strategy (including asset allocation and diversification strategies) can ensure peace of mind, guarantee profit, or protect against loss.    

1. What is inflation and how should it affect investing. September 7, 2022. https://www.investopedia.com/ask/answers/what-is-inflation-and-how-should-it-affect-investing/

2. Inflation is cooling, leaving American Asking: What comes next? January 23, 2023. https://www.nytimes.com/2023/01/23/business/economy/inflation-turning-point.html

3. Figure Inflation into your Financial Plan. Feb 6, 2023. https://www.thestreet.com/retirement-daily/your-money/figure-inflation-into-your-financial-plan