Financial Frights

Dustin A. Husarik CFP®

Vice President-Financial Advisor

Magnan Family Wealth Management

As Halloween approaches, it’s a time for spooky costumes, eerie tales, and things that go bump in the night.  But while ghosts and goblins are mere tricks of imagination, there’s another unseen force that’s far scarier lurking in the shadows: inflation.  Like a silent, creeping critter, inflation can be unsettling.  You might not notice it at first, but over time, it can slowly and methodically chip away at your wealth, haunting your financial security.  Let’s shed some light on this silent terror and understand why it’s so essential to guard against it.

 It’s easy to be frightened by the sudden moves in the stock market or the sensational headlines that seem to scream, “Financial ruin is near!” But fear and danger aren’t always the same.  Fear is often driven by the unknown, the unexpected, or the volatile.  It’s that sudden crash in the stock market that feels like a werewolf jumping out of the bushes, making your heart skip a beat.  Volatility, much like a Halloween fright, can seem terrifying in the moment.  But often, it’s more of an illusion than a real threat.  Danger, on the other hand, is much more insidious.  It’s not always loud or dramatic-it can be the quiet, persistent erosion of your purchasing power over time. Inflation is that slow-moving creature in distance, shambling toward, seemingly harmless until you realize that it’s right at your door.  The real danger is outliving your money, and that’s the financial horror story no one wants to experience.

So, what exactly is inflation?  Simply, put, it’s the gradual increase in prices over time, which means that the dollars in your pocket today won’t be able to buy as much in the future (Consider the costs of a bag of Halloween candy). It might seem like just a few pennies here and there, but over time, inflation can devour a significant portion of your wealth, much like a vampire slowly draining your financial lifeblood.  Consider this: If inflation averages 3% per year, the cost of goods and services will double in about 24 years (*Rule of 72).  That means if you retire today with enough savings to cover your expenses, without account for inflation, you could find yourself in a real-life nightmare as the years go by.

How do you combat this financial monster lurking in the shadows?  Equities, or stocks, have historically been one of the most effective weapons against inflation.  Our philosophy is rooted in the idea that the ownership of great companies is one of the best defenses against inflation’s relentless assault.  Stocks represent ownership in businesses, and as these businesses grow and adapt to changing economic conditions, they tend to pass inflation costs onto consumers.  This ability to grow earnings over time has made equities a useful tool against rising prices.  But it’s not just inflation we’re up against.  To enjoy a comfortable retirement, we must overcome three daunting hurdles:  our withdrawal rate, inflation, and taxes.  Stocks have a long track record of delivering returns that can outpace inflation, help sustain your withdrawal needs, and with smart planning, manage your tax burden.  Unlike bonds, which seek to maintain their principal value are prone to losing value in an inflationary environment, stocks have historically provided the kind of returns necessary to stay ahead of these challenges. 

Yes, inflation is real, and it’s not going anywhere.  But much like Halloween’s tricks and frights, it doesn’t have to be something that keeps you up at night.  The key to overcoming this fearsome foe is understanding the difference between short-term scares and long-term danger.  We believe with a solid investment strategy anchored in ownership of the best companies in the world, you can face the specter of inflation head-on, confident that your financial future is secure.  So, as you carve your pumpkins and watch the skeletons dance this Halloween season, remember: the real horror story would be ignoring the slow, creeping danger of inflation.  But with the right plan, you can turn that tale of terror into a story of financial triumph. 

*Rule of 72 is a quick formula used to estimate the number of years required to double an investment of cost of an expense at a given annual rate of return.  Rule of 72 is strictly an estimate and should not be relied upon as accurate information.