The Kindest Cut

Dennis Friedman

MY WIFE AND I are planning a cross-country trip next year, and we need a new vehicle for the journey. The dealer we visited didn’t have a lot of SUVs to choose from because of the global semiconductor shortage. The SUVs in stock had dealer add-ons, such as a $1,900 alarm system and $1,500 for paint sealant. My thought: The dealer was trying to take advantage of the vehicle shortage by adding more options to drive up the price.

The Bureau of Labor Statistics recently reported that overall consumer prices have climbed 5.4% over the prior 12 months. If inflation is here to stay, retirees like me need to figure out the best way to protect our investment portfolio.

A Vanguard Group article showed that making changes to a well-diversified portfolio is probably not the best way to protect yourself from higher inflation. For instance, adding Treasury Inflation-Protected Securities provides only a limited hedge against inflation because it offers little protection for the rest of your portfolio. Commodities are not a good fit because of their high volatility, plus they suffered spells of underperformance during previous periods of higher inflation.

The Vanguard study concluded that making small reductions in spending will likely be more beneficial than adjustments to your investment portfolio. Even small spending cuts during times of uncertainty can increase the chances you won’t run out of money. The upshot: We decided to postpone our SUV purchase for now.

Notify of
Oldest Most Voted
Inline Feedbacks
View all comments

Free Newsletter