ARBOR WEALTH: Inflation is only the half of it

Published: Thursday, February 7, 2013 at 17:27 PM.

If, like me, you purchase half and half for your coffee frequently in Grand Boulevard or Miramar or Santa Rosa Beach, you may be aware of how much the cost of this product escalates.  I know this can’t be true, but it seems that every time I buy half and half, the price has gone up by twenty cents or so.

When we think of retirement, and planning for it, we are foolish not to consider the specter of inflation. Constantly rising prices on repeatedly purchased goods is only the half of it, no pun intended. 

The flip side of the equation, of course, is that we must make our money grow at least as fast as inflation rises, and hopefully faster, so that we’re simultaneously keeping pace with rising prices and growing our portfolio. Health care premiums, home and car insurance rates, college tuition levels: these expenses never seem to decline. And regardless of the cost of food and fuel and utilities, these are staple items that we must purchase, regardless of the rising price tag.

While we’re still in our working years, we can at least enjoy the prospect of increased income through wage increases. And we can fight inflation with a larger income. After retirement, our income is frequently fixed so keeping pace with inflation becomes much more challenging. 

As we all know, CD’s are paying virtually nothing. And treasury securities, while a safe investment, are also low yielding and not likely to provide the return we need. So we’re forced to utilize the equity markets to make any kind of headway.

In our opinion, the best defense against inflation for a person with a significant portfolio is generating income through one’s investments. Getting paid from one’s portfolio is a virtual mantra at our firm, and we rarely purchase securities that do not pay a dividend.

For those in retirement, these dividends and coupon payments serve as a “replicated paycheck,” money streaming into one’s checking account monthly. Meanwhile, we endeavor to continue growing the principal in the accounts. But whether the market rises, slumps or moves sideways, if you are invested in dividend-payers, you still enjoy periodic, systematic income. 



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