There’s no escaping the rising prices in, well, everything. We know that inflation has taken a big toll on consumers over the last year, but individual staples have far outpaced inflation. Gas, specifically, has seen a massive increase in the last few weeks and that was before President Biden banned gas and oil imports from Russia. On top of this, we’re still reeling from the huge sums of money pumped into the economy from the pandemic.
There’s renewed fear about necessities becoming overpriced as well. Ukraine and Russia make up a good portion of the world’s wheat exports. With sanctions and disruption, we may see prices of basic food products push even higher, not accounting for adjusted pricing due to labor shortages and higher transportation costs.
As a financial advisor, your clients often look to you to stay on top of the global trends and news events so that you can provide answers. When the world feels uneasy, advising through software that’s goals based or cash flow based isn’t enough. Building deep relationships and providing sound advice leapfrog over charts and graphs in importance for client conversations, which is why it’s important to always have a few talking points on hand for major market happenings. We’ve outlined a few key talking points below to help you.
The Silver Lining
As with every event, there’s an opportunity to maintain and create wealth. Commodities don’t show signs of slowing down: Brent crude oil, gold, coffee, wheat futures, etc, are up and will likely continue in their current trend. It’s a great opportunity to invest if your clients are wanting to capitalize on the current trends.
Moving into commodities, especially in tumultuous times, can provide a sense of security and will hopefully outpace rising costs, or at a minimum, keep up with them. While likely not a stable long-term solution, it can help leverage funds to accomplish financial goals in the short term.
Areas of Opportunity
Those on a fixed income, like many retirees, will most certainly feel the pain of rising costs. Every penny increase is a penny lost from a finite pool of money. While there are certainly plenty of retirees who have enough to make it to the end of their life, those in the fragile decade, five years on either side of their retirement date, tend to feel the pressure of downturns much more significantly. This could mean tough conversations with clients about adjusting expectations around nonessential retirement ideas – like travel, extra homes, assisting with grandchildren’s college expenses or charitable giving. Providing scenarios that allow your clients to easily understand the impact of their decisions right now will give both you and them the peace they need to know that they’re well prepared for whatever comes in the future.
Unfortunately, the current European tension and domestic pressures don’t show signs of speedy resolution. A labor shortage, coupled with low birth rates, an aging population, an overheated monetary supply, and now a humanitarian crisis point to continued increases in the cost to goods and services. We recommend hedging against price increases in the coming years in ways that your clients are comfortable with.
Having these conversations proactively with your clients can go a long way for developing a deep relationship of trust and partnership.
Where Should We Look for Answers?
It’s natural for clients to look for an explanation for why this is happening and while many are placated with the simple scapegoat of “politicians,” nothing is ever that simple. Some blame certainly lies with Washington, but there’s no way to remove uncertainty or market fluctuation from the future. We recommend that you encourage your clients to turn off the news, close Facebook and Twitter and not lose sleep over the financial implications of our day. Instead, help them focus on the pieces of their future that they can control – like accumulation, spending and making good, dynamic plans.
No one can see the future, but zooming out of the current moment reminds us that the economy and humanity are resilient. While certain things may look grim right now, overall the future is still bright. Keep that in mind when you consume headlines and when communicating with clients. The storm clouds may block our view today, but just above them, the sun shines on.
