Columbus Monthly: Wealth Management Special Section (2022)

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Planning for an Uncertain Future With prices rising and stocks falling, you may want to shift your spending—but remember that a well-developed, long-term plan has market uncertainty baked in.

If you tune into any financial news outlet—or any news outlet, for that matter—you’ve likely noticed the breathless coverage of rising inflation. Actually, forget the news; if you’ve simply filled your gas tank or purchased groceries recently, you get the picture.

Right now, inflation is at the highest levels the country has seen in four decades. To combat the rise in prices, the Federal Reserve is raising interest rates—the first time they’ve done so after an almost uninterrupted 15-year period of keeping rates very low to generate economic activity after the Great Recession. And the stock markets in the U.S. and globally have declined in response to changes in policy, inflation and other geopolitical risks.

So what does this all mean for your financial planning strategies? The short-term impacts of higher prices have made themselves obvious enough, but the long-term effects on

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your wealth management plans may be less clear.

Plan for Inflation Inflation can sometimes be a silent killer when it comes to financial planning, because your assets and resources have to be able to withstand rising costs.

“It’s important pre-retirement, obviously, because you’re trying to save for that time when you’re no longer going to have income coming in or if your income is fixed in retirement,” says Daniel Due, chief planning officer at wealth management firm Budros Ruhlin & Roe. “You don’t have a lot of flexibility then, and inflation can certainly erode away your purchasing power.”

With that in mind, Due says that inflation has to be an element in any financial plan, adding that financial planners will know to account for higher inflation in some areas versus others.

In fact, just having a financial plan is Due’s No. 1 piece of advice for protecting yourself from the long-term effects of inflation.

“Inflation needs to be accounted for, and you need to understand how it can impact you,” he says. “But your wealth management plan should give you confidence. Even if you don’t know what could happen, what could disrupt the market, you have a plan that can weather the storm.”

Make a Spending Plan Due and his team emphasize sticking with a spending plan and homing in on what you can control in particular.

Determine what your spending currently looks like, build in a buffer (you can’t plan for everything—that’s just life) and determine where you may need to pump the brakes.

“If need be, hit the pause button on a few items that, if you don’t need to be

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making those expenditures right now, you don’t have to,” he says, pointing in particular to costs that have increased quite a bit recently, such as travel or a new car. “If you can hold off for a little bit in the short term, then you’re just going to avoid paying a higher price now than what you might be able to get down the road.”

Identify what can be flexible in your spending plan and consider where you can shift your dollars: Get rid of some subscriptions that you may not be using, for example. You can move that money toward the items that are being affected by inflation, such as gas and groceries. Building in flexibility can help ensure a person’s finances aren’t impacted too drastically by changes in prices.

“Assets you had allocated to cover expenses may not be sufficient to cover current needs,” says Stephanie Green, senior vice president and managing director of Fifth Third Bank.

“Now is the time to reassess your budget and think about what you are planning to purchase. Focus on the items that you need. For instance, housing

prices are significantly inflated today.

If you don’t actually need a new house now and can wait until the housing market cools off a bit, that could save you quite a bit.”

Green says the general rule of thumb is to not spend more than your asset base on living expenses. Yes, during an inflationary period, you may have to spend a bit more—but as your assets rebound, you should readjust your spending plan. She says this is also why it’s crucial to have six to 12 months of cash on hand to cover expenses, so your asset positioning can remain in place.

While it may be uncomfortable and disappointing to put off some purchases, having a spending plan can put you at ease in the long run.

“Hopefully, the peace of mind of the plan over the long term is something that will help [someone] not feel like they have to go day-to-day, month-tomonth or quarter-to-quarter thinking, ‘Can I do this or not do this?’” Due says.

“No one really wants to be subject to wild fluctuations in retirement; they want a normalized spending plan.”

Diversify Your Portfolio Broad investment portfolio diversification helps you weather the storm in the long run, Due explains. Some of your investments may take a hit during periods of high inflation, while others may not. And when you do see those dips?

Don’t panic, and don’t make knee-jerk reactions. Drastic changes in the short term can lead to long-term problems.

Remember, you want to stick with your financial plans; they’re built to change with market uncertainties. ​At the same time, it’s worthwhile to look for opportunities where you can take advantage of high-quality investments that are experiencing what could be temporary setbacks, says Dan Roe, chief investment officer for Budros Ruhlin & Roe. “Selectively reallocate capital from short-term bonds and alternative strategies that have held up relatively well in this market into those quality investments,” Roe says.

Green adds that changes to the portfolio can be a consideration, depending on your goals. On one hand, as Roe notes, this can be an opportunistic time to buy—equity values are lower,

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Watch Interest Rates If you have short-term debt with high interest rates, focus some spending on paying that down—and be cautious of buying items that have rising interest rates.

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some credit card debt—may be especially tricky right now. “Not only are outside costs inflating, but the cost of borrowing is going up as well.”

Due says to avoid taking on variable interest rate debt in the first place—but if you do have some, maybe dedicate more dollars toward paying that down.

​​”Rising interest rates can cause a bit of trouble in the short term when it comes to people trying to offset inflation by investing,” Due says. “Bonds right now are really paying low interest rates, but they’re actually on the rise.

So if you’re buying at these low interest rates, you’re just going to be, unfortunately, behind the eight ball, because as interest rates rise, that bond isn’t going to be worth as much in the future.”

He says debt tied to variable interest rates—maybe home equity lines or

The Bottom Line The big takeaway? Stick with your plan and know that high inflation won’t last forever. The Federal Reserve is raising interest rates in an attempt to offset and pull inflation back a little.

Sure, it’ll have some shorter-term ramifications, but know that these higher levels won’t last forever. Making drastic short-term changes to your plans is unnecessary.

“Having a financial plan can help ease people’s minds and ease concerns,” Due says. “Those people that do have a plan? Stick to it. That’s the reason it’s built. Planning is always ongoing. There isn’t just one plan that’s locked in; you’re always revisiting it. Planning really does pay off in the long run.”

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and adding to your portfolio will result in a larger upside when the market recovers. On the other hand, if you have less of an appetite for volatility, it might make sense to be more conservative with your portfolio.

“Knowing inflation and interest rates are rising, we may hold less bond exposure in the portfolios—or at least shorter-term bonds—so clients are not locked into long-term, lower-return assets,” Green says.

Another step to consider is gifting to a spouse or child: From an estate gift tax perspective, you want to gift when the value of your assets—whether business or investable assets—is lower whenever possible, Green says. “Gifting the assets into an irrevocable trust will allow the appreciation on those assets to grow free from estate tax and generation-skipping inheritance taxes.”