Navigating external pressures like declining stock values and rising investors, few things are more frustrating than watching the markets stumble while inflation diminishes their purchasing power.
Certified financial planner Douglas Boneparth offers his best advice for how to quell that agitation with a smart, long-term investment strategy.
A reader from Maryland asks: How do I grow the money I have and hedge against inflation and the next market correction?
DOUG: Two things make investors nervous about the future: Inflation eroding their purchasing power, and a market correction suddenly shrinking their portfolio. They feel like different threats, but a well-constructed investment strategy can address both at the same time.
Let’s start with inflation. The best long-term hedge against inflation historically has been owning assets that grow faster than prices do. That generally means staying invested in stocks because they have outpaced inflation over long periods more consistently than almost anything else. Beyond that, assets like real estate and commodities can provide additional insulation, though they have their own risks and complexities.
Now, about market corrections. Corrections are normal. They happen regularly, they feel terrible every time, and they have historically been followed by recoveries. The best hedge against them isn’t trying to time your way out of the market. That’s a game almost no one wins. Rather, it’s having a diversified portfolio that matches your time horizon and risk tolerance, so when the market drops, you’re not forced to sell at the wrong time.
Both concerns point to the same solution. A diversified, long-term investment strategy that you don’t abandon when things get uncomfortable. The investors who get hurt most in corrections are the ones who panic. The ones who stay the course, and better yet, keep <a best" outcome, focus on defining what "enough" means for your specific situation and aim for that.
Additionally, if you find life sufficiently complex, you do not need to master the intricacies of the market or juggle multiple investment strategies to reach your goals. In fact, you may find success by utilizing a simpler approach, such as sticking with a few low-cost index funds that track market performance over time.
