Date: February 21, 2022

Inflation Doesn’t Have To Be Bad News for Affluent Investors

The good news: You don’t have to lose money during times of inflation. You can build substantial wealth with strategic investment guidance. 

The bad news: if your risk tolerance is low, you might hesitate to diversify your assets in helpful ways. 

Read on to understand why diversification is essential in investing, especially now.

The Current Inflation Inferno

The U.S. is currently caught in an inflation inferno. Inflation is running at 6.8 annualized, the highest rate in roughly 40 years. The causes: there are multiple causes of the dramatic spike in inflation, including economic disruptions caused by the COVID-19 pandemic. 

The pandemic has triggered increased government spending, increased consumer saving by some groups combined with less purchasing power in others, economic uncertainty, and supply chain disruptions. 

To top that off, the employment market is very tight, and the Fed has signaled that it will be raising interest rates. All of these contribute to the inferno of inflation, reported by our financial advisor Gilbert team.

Inflation expects to moderate as COVID effects like supply chain issues ease. But as you know, there is no certainty when it will end or by how much it will drop. Read on to learn more about how this can impact you.

Curious about Market Volatility and further Impacts of Inflation? Educate yourself, then connect with a Watts Investment Advisor!


Inflation’s Impact on the Market

Inflation is often spoken about as bad news. For consumers, it hits the pocketbook with more significant expense, which means you can purchase less. As a result, inflation causes the entire economy to contract, as both businesses and consumers cut back on spending.

For investors, inflation impacts long-term wealth. It erodes the value of your money over time, as interest rates on both cash instruments and bonds are far below the rate of inflation, at 1% to 2%. Therefore, the value of the money held in these instruments does drop over time. 

More importantly, perhaps, inflation can drive stocks down. Inflation often affects specific sectors of the market, which can make the price of stocks in those sectors volatile in the near term and affect their long-term appreciation potential. 

Inflation is likely to affect high tech, for example, simply because it’s a sector where inflation causes large jumps in company expenses, without concurrent ability to price its products to make up for the higher cost of materials. 

High-tech purchases are often discretionary. If prices jump notably for new smartphones and laptops, consumers may simply decide to keep what they have.

If the price of metals, chips, and other raw materials rises due to inflation and tech companies don’t have much power to raise their prices, their bottom line will be hurt. Stock market prices follow the companies’ bottom line over the long term.

Where Are Opportunities for High-Net-Worth Investors? 

The fact that some sectors will be hurt by inflation doesn’t mean all of them will. That’s why diversification is essential in investing. Sectors such as consumer staples, industrials, retail stocks, some energy, and health care are likely to continue doing well and even benefit from inflation. 

Why? Because they are all sectors that can command purchasing power and will have customers buying their products even if prices increase. It’s kind of like the art of knowing how people consume.

Consumers still need food and personal products produced by consumer staple companies. They are likely to purchase back-to-school clothes, heat and cool their homes and get medical attention as required, even if the prices jump. Both businesses and consumers will need goods and services from the industrial sector. 

Exchange-traded funds (ETFs) are another investment likely to do well. First, ETFs comprise many different stocks, so they benefit from diversification. Second, many ETFs can weather inflation just fine. 

High-dividend ETFs can reward investors with dividend reinvestment and potential stock price appreciation. Commodity ETFs can benefit from price increases in commodities.

Look at Alternate Investments

High-net-worth individuals should also look at alternative investments that benefit from inflation. Treasury bonds, for instance, are likely to see increases in interest rates. Baskets of treasury inflation-protected securities (TIPS), indexed to inflation, can be a beneficial alternative to a bond mutual fund. 

Precious metals like gold and silver are classic inflation hedges because the price often rises in inflationary times. Investors can look to precious metals for security.

Finally, real estate investments are likely to do very well in inflationary times. Real estate prices are rising in many locations around the country, so multifamily dwellings offer the opportunity for rental income increases and triple net leases.

Don’t Sit on Cash

Don’t sit on all your cash just because of inflation-based fears. When prices rise, that can be a real temptation, especially if inflation and Fed interest rate hikes throw a lot of volatility into the markets. Sitting on cash can seem safe and calm. 

The fact is, sitting on cash is not a good strategy in times of inflation. Your money is losing value — nearly 7% of its value in December 2021 compared with December 2020. 

You need to invest in concentrated stock strategies in sectors poised to benefit and consider alternative investments to stay ahead of inflation’s drag. Use inflation to help you, not to subtract from your net worth. Read Top 3 Questions We’re Asked About a High Net Worth Retirement.


Need professional support to diversify your assets? Watts Wealth Advisors can help you build wealth while navigating new investment territory with wisdom!


Benefits of Working With a Financial Team That Understands Your Needs

High-net-worth investors in Gilbert, Arizona, can benefit from an investment management firm that understands the unique needs of affluent investors in challenging times. You have multiple opportunities to harness price increases to work for you rather than against you. 

No matter which investment management firms in Arizona you consult, the majority will agree with Watts Gwilliam & Company – both diversification and alternative investments can present significant opportunities to grow your portfolio as inflation rises. 

Read: Why Low Prices Can be a Good Thing: Investment Advisor in Gilbert Explains

Call us today to discuss your financial needs: (480) 889-8998

Watts Gwilliam eBook


David Watts

Dave is one of the firm’s founders. He helps business owners, professional athletes, and other high-net worth clients develop and implement financial plans and strategies. He also specializes in helping those with single-stock positions to diversify and manage their financial lives. Other areas of specialty are wealth transfer plans for concentrated stockholders and business owners; tax minimization strategies for those with employee stock options; cash flow management; and risk management planning.