Should you be worried about inflation?

--  |   26/03/2021 Text size  Decrease  Increase   |  
email_fwd
<p><strong>Susan Dziubinski:</strong><span>&nbsp;Hi, I'm Susan Dziubinski with Morningstar. Some on Wall Street say the days of low inflation are over. Should investors be concerned? Joining me today to discuss the topic is Christine Benz. Christine is Morningstar's director of personal finance.</span><br /><br /><span>Hi, Christine. Thank you for being here today.</span><br /><br /><strong>Christine Benz:</strong><span>&nbsp;Hi, Susan. It's great to be here.</span><br /><br /><strong>Dziubinski:&nbsp;</strong><span>So, why all the talk of inflation right now, Christine?</span><br /><br /><strong>Benz:&nbsp;</strong><span>Well, there are a couple of key reasons, Susan. One is that the vaccines are coming on strong, and there's a sense that in the second half of the year certainly we could be experiencing a strongly recovering economy. So, that's a good news story. A related issue is the stimulus package, where there are some concerns that because it is putting so much money in consumers' pocket and helping them in other parts of their lives as well that we may see some inflation related to that. It's kind of a convergence of factors. But the overarching theme is, we're coming out of this pandemic, there's a lot of pent-up demand, and we could see prices start to nudge higher. And in fact, we have started to see prices nudge higher in some areas.</span><br /><br /><strong>Dziubinski:&nbsp;</strong><span>Do you think that investors should actually be concerned about inflation right now?</span><br /><br /><strong>Benz:&nbsp;</strong><span>I think they should always have it on their radar, and it's an especially vexing thing for people who have a large share of their portfolios in investments that are earning fixed rates of return. Say, you have nominal Treasury bonds that are paying you a pretty small yield today. The risk is that if inflation heats up that that could gobble up everything you're earning. So, it takes a bite out of your income stream. I do think it's worth having on your radar. Although I would also say that we heard a lot of inflationary worries in the wake of the great financial crisis from 2007 through 2009, where we heard a similar set of concerns--that the package passed to rescue the economy would stoke inflation. We didn't really see it. We went on to have a decade's worth of very benign inflation. So, it's hard to say whether the predictions will come true.</span><br /><br /><strong>Dziubinski:</strong><span>&nbsp;Now we've talked a little bit in the past about calculating your own personal rate of inflation and why that's something really to think about doing rather than relying strictly on outside benchmarks like the Consumer Price Index as a gauge of what inflation means for you specifically. Why are you a big proponent of this personal rate of inflation, and how does one go about beginning to get your arms around that?</span><br /><br /><strong>Benz:&nbsp;</strong><span>Right. I do think it's something to at least give some thought to. The way to think about it is we see these inflation numbers like the Consumer Price Index. Well, that's a broad basket, and it's making assumptions about how you spend your money, and you may not be spending your money on the same basket of goods that is used in the CPI. I do think it's important to think about how you're spending money, to be observant about whether the areas where you're spending--about whether they're inflating or whether they're holding steady. We've seen food inflation creep up recently. If food is a big share of your household budget, you probably are experiencing that inflation firsthand. If healthcare expenses are a big share of your budget--well, we know older adults tend to pay more for healthcare out of pocket than do younger adults. So, pay attention to what you're spending money on when you're thinking about how much to care about inflation. But the short answer is: It matters for all of us because we're all spending money on some of these things some of the time.</span><br /><br /><strong>Dziubinski:&nbsp;</strong><span>Let's say, you're a younger investor and you're still in accumulation mode, and you do find that, "OK, I am feeling a little bit of a personal rate of inflation going up here." What do you advise these investors be thinking about or doing?</span><br /><br /><strong>Benz:</strong><span>&nbsp;Well, the best thing to do is just to make sure with respect to your investment portfolio that you're maintaining ample exposure to stocks. Because we know that over time while stocks are not any sort of good hedge against inflation--so you won't see stocks go up at the same time inflation goes up--what we know is that stocks over long periods of time have tended to have better returns than the inflation rate. So, making sure that you have ample stock exposure. Also making sure that you're paying attention to your savings rate. Because if we're having to pay more for stuff to go about our lives, that naturally impinges on our savings rates. So, making sure that, if we do see inflation, that's not unduly affecting your savings rate.</span><br /><br /><span>And then, another thing to consider would be homeownership. And certainly, this is a big question. There are many different facets of whether it makes sense to buy a home or not. But all else being equal, if we're in an inflationary environment, it will tend to be beneficial to be a homeowner, be a borrower because the money that you borrow and that you're paying back is worth less. So, you're sort of locking in a good deal for yourself. And then, the other thing to know is that if you are a homeowner, you're not exposed to rents, which can slide up as we see inflation begin to tick up. So, those are a couple of things for people who are accumulating assets for retirement to think about.</span><br /><br /><strong>Dziubinski:</strong><span>&nbsp;Now what about folks who may be close to retirement or already in retirement and, say, they are beginning to see that, "Yes, my personal inflation rate is going up." What are some things that they should be mindful of?</span><br /><br /><strong>Benz:&nbsp;</strong><span>This is a bigger deal for people who are in retirement because they are not earning a cost of living adjustment in the paycheck that they're taking out of their portfolios. Social Security gives them a little bit of a bump up to keep pace with inflation. But the portion of their portfolios that they're withdrawing to cover their living expenses are not inflation-adjusted in anyway. I do think that retirees, not just when they begin to see inflation, but when they embark on retirement, should make sure that they have adequate inflation hedges in their portfolio. I think that includes a healthy complement of inflation-protected bonds--to the extent that they have bonds in their portfolio, a good share of them should be inflation-protected bonds. And then, also making sure that retirees have adequate equity exposure as well, because they want the whole of their portfolio to be able to keep pace with inflation in some fashion, and we know that stocks over time do that. Those are a couple of things to consider.</span><br /><br /><span>Also, to the extent that you're purchasing any sort of insurance policy, say, a long-term-care insurance policy, to the extent that you can add an inflation rider that will protect you against inflation, that will increase your coverage to keep pace with inflation, that makes sense as well.</span><br /><br /><strong>Dziubinski:</strong><span>&nbsp;Well, Christine, thank you so much for your time today and for some perspective on how we should be thinking about inflation. Appreciate it.</span><br /><br /><strong>Benz:</strong><span>&nbsp;Thank you so much, Susan.</span><br /><br /><strong>Dziubinski:&nbsp;</strong><span>I'm Susan Dziubinski for Morningstar. Thank you for tuning in.</span></p> <p><span style="font-family: Verdana, serif; font-size: 12px; background-color: #efefef;">&nbsp;</span></p>

Video Archive...

Silver linings for investors amid the climate stalemate: COP26 debrief
01/12/2021  Long-term investor sees opportunities where businesses are moving towards a zero-carbon future faster than governments.
6 qualities of great index funds
30/11/2021  To understand your fund, get to know its underlying index.
Lazard's 3 top picks for the energy transition
29/11/2021  These companies are set to profit from the move to clean energy, says Lazard.
An uneven energy transition leaves room for coal and gas: COP26 debrief
24/11/2021  The results of the COP26 climate summit suggest coal demand is likely to persist for longer than expected.
What rising inflation means for Australian investors
17/11/2021  And how investors can protect their portfolios.
6 inflation-tough stocks for global investors
08/11/2021  Morningstar thinks these moaty companies will remain resilient in the face of inflation and ongoing supply chain challenges.
Risk/reward equation still looks good at Westpac
05/11/2021  Morningstar maintains fair value despite a fall in margins and slower progress on cost reductions.
These aren't the Bitcoin ETFs you're looking for
19/10/2021  These new US-listed exchange-traded funds will invest in bitcoin futures, not bitcoin itself.
ESG funds don't underperform - but nor do they outperform
15/10/2021  The ESG outperformance narrative is flawed, new research shows.
Building investment portfolios in a low interest rate environment
06/10/2021  Investors may need to hold more growth assets over the coming years, says Morningstar's Jody Fitzgerald.
Covid impacts still being felt in real estate and tech: Reporting season roundup
01/10/2021  And how G8 Education and Link Administration are positioned for long-term success.
Look to Credit Corp for a leading indicator of economic health: Reporting season roundup
30/09/2021  What Reporting Season August 2021 told investors about the health of the financials sector.
Cause for optimism at a2 Milk and Invocare: Reporting season roundup
28/09/2021  a2 milk is an opportunity to be greedy when others are fearful.
Post-covid normalisation is underway in healthcare: Reporting season roundup
23/09/2021  Covid's winners and losers are returning to their prior trajectories. 
One of the most underappreciated dangers of investing
21/09/2021  Sequence-of-returns risk matters for both retirees and savers. Here's why. 
REITs recover pandemic losses: Reporting season roundup
20/09/2021  Analysts expect the sector to recover to pre-Covid trading levels once borders reopen.
Australian banks face margin pressure amid low rates: Reporting season roundup
15/09/2021  Rising customer deposits and access to cheap funding helped Australia's banks stave off net interest margin pressure, but analysts see warning signs.
Greenwashing explained
14/09/2021  Morningstar's Hortense Bioy on how to spot greenwashing and how to avoid it.
Earnings down as private money circles infrastructure: Reporting season roundup
13/09/2021  Utilities and infrastructure names battle the impact of covid as private equity and pension funds circle. 
Frenzy of mergers in energy: Reporting season roundup
10/09/2021  Hydrocarbons poised for a comeback.
TPG tipped to recover as mobile competition eases: Reporting season roundup
09/09/2021  Providers have lifted prices after years of a debilitating chase for subscribers at all costs , says Morningstar's Brian Han.
Short-sellers bet against ARK Innovation ETF
08/09/2021  What shorting ETFs means for long-term investors.
Surging lumber prices were no match for Brambles: Reporting season roundup
07/09/2021  Morningstar senior analyst Grant Slade says Brambles secular growth trend is intact despite nearterm headwinds. He discusses results from the building and construction materials sector.
Miners soar thanks to iron ore: Reporting season roundup
03/09/2021  Miners bask in the glow of iron ore prices while bargains remain in coal.
BHP-Woodside merger is mutually beneficial
23/08/2021  Post-merger Woodside would be well positioned to deliver on the value we've seen for a long time, say Morningstar analysts.
Investors are getting serious about sustainability
16/08/2021  But the sector lacks uniformity, says Morningstar's Christopher Franz. 
Long term outlook for AGL is positive
11/08/2021  Higher wholesale electricity prices bode well for AGL, according to Morningstar senior equities analyst Adrian Atkins.
How you can hedge your portfolio against inflation
11/08/2021  Morningstar FundInvestor editor Russ Kinnel describes some direct and indirect hedges for inflation protection.
The iron ore party can't last: Morningstar
10/08/2021  Copper and iron ore have benefited materially from China’s stimulus and the developed world recovery. But Morningstar analyst Mat Hodge see these benefit as transitory.
What the Afterpay acquisition means for investors: Morningstar Minute
05/08/2021  We believe the transaction has a high chance of succeeding.
Cannabis' federal legal status is not a total buzzkill
03/08/2021  The industry still has significant growth potential.
Stock of the week: Toyota
03/08/2021  Is one of the biggest sponsors of the Olympics positioned for an all-electric future?
2 listed microcap names to consider
23/07/2021  Morningstar's Lex Hall talks micro-cap stock picks with Carlos Gil, chief investment officer at Microequities Asset Management.
Big returns, big risks: Making money with microcaps
22/07/2021  Mornngstar's Lex Hall catches up with Carlos Gil, chief investment officer at Microequities Asset Management.
3 small-caps with Dawn Kanelleas
21/07/2021  The head of Australian small and mid-cap stocks at First Sentier Investors has her eye on ARB, Breville and IDP Education.
Forecast 2021–2022: A correction could be around the corner
20/07/2021  The strong performances of global stock markets in 2020–21 are unlikely to be repeated in the coming year says Morningstar's Peter Warnes.
'Overvalued' warnings grow as ASX 200 hits new high
12/07/2021  Morningstar equity analysts warn that equities remain overvalued despite Australia's strong economic recovery.
What to know about private equity
08/07/2021  Private equity is an exciting area for investors, with lots of hotly-tipped stocks. But there are risks to be aware of, says Pitchbook analyst Dylan Cox.
Lazard's 3 top picks for the global covid recovery
08/07/2021  Warryn Robertson is looking at French infrastructure, retail pharmacy and tax services.
Aussie banks $34bn surplus points to more shareholder dividends, buybacks
06/07/2021  Australia's largest banks have excess capital because they cut dividends, were more conservative on lending, divested assets and raised equity last year. Morningstar's Nathan Zaia thinks most of it should be returned to shareholders.
Weighing up the PEXA IPO
02/07/2021  PEXA burst onto the ASX this week in the biggest float since 2019. Morningstar's Gareth James gives his take on the company's future growth prospects.
Can the iron ore price keep rising?
30/06/2021  Iron ore prices have  been on a tear, boosting the profits of Australia's top miners.  How did we get here and is the only way up? Lex Hall sits down with Morningstar's Mat Hodge.
2 new stocks to watch
28/06/2021  Morningstar has recently initiated coverage of a food delivery app and a consumer finance product. 
'Strongest earnings season I've ever seen'
24/06/2021  Meeting the deluge of demand is the biggest task for US companies, says Bell Asset Management's Ned Bell.
Biotech beyond covid
22/06/2021  Are there still opportunities in the biotech sector now the covid-19 vaccine roll out is underway? We ask International Biotechnology Trust manager Ailsa Craig
Alibaba is still deeply undervalued
21/06/2021  Morningstar's director of Asia equity research is confident the e-commerce giant will bounce back.
Weighing up the Endeavour IPO
18/06/2021  A wide moat and attractive dividend potential are among the key takeaways of Woolworth's decision to demerge from the liquor and hospitality group.
'Then we got hit with the equivalent of a war'
15/06/2021  Lazard Asset Management's Warryn Robertson explains how companies in the Global Equity Franchise fund have adjusted to covid, and assesses the threat of rising inflation.
Understanding Magellan's active ETF strategy
11/06/2021  Magellan's Craig Wright tells Emma Rapaport why it is leading the charge in the active ETF arena and how its global equity product works.
3 off-the-radar small caps
10/06/2021  Callum Burns of ICE Investors explains his conviction in pharmaceutical distributor Ebos, PSC Insurance Group, and elite sports analytics provider Catapult.
Small cap gems and how to find them
09/06/2021  Callum Burns explains how ICE Investors identifies companies with original products and sticky customer bases.
Stock of the Week: Salesforce.com
08/06/2021  They’re building an empire.
3 oil stocks we still like
07/06/2021  A year ago the oil price went negative. How have oil giants handled the past 12 months and what's the outlook from here? Morningstar analyst Allen Good explains.
Considering crypto? Here's what to think about
04/06/2021  As the investment world goes crazy for crypto, Morningstar Investment Management's Dan Kemp explains what to consider before putting it in your portfolio
Why we like Wizz Air
03/06/2021  The airline sector is set to recover as international travel resumes. Morningstar analysts think Wizz Air offer the best opportunity among low-cost carriers.
3 global infrastructure picks
28/05/2021  4D Infrastructure's Sarah Shaw outlines the investment case for Spanish multinationals Cellnex, and Iberdrola, and the potential of Mexican airports.
Are crypto ETFs coming?
28/05/2021  The SEC continues to sort out its regulatory concerns.
Stock of the Week: Apple
27/05/2021  We’re raising our fair value as sales hit new highs—but investors need to put it in perspective, says Andrew Willis.
Opportunities in global infrastructure
25/05/2021  Covid-19 has enhanced rather than impeded the future for global infrastructure, says Sarah Shaw of 4D Infrastructure.
Tribeca's eye for Domain
24/05/2021  Tribeca's Jun Bei Liu also explains why she sees opportunity in sleep apnea specialist ResMed as well as Treasury Wine Estates.
Stocks for emerging markets
19/05/2021  American Century Investment's Patricia Ribeiro sees growth in Chinese battery technology, biologics, and building materials in Latin America.
2 stocks for the rise of the robots
18/05/2021  Robotics is a fast-growing area of tech, creating opportunities in medical, logistics and life sciences sectors and much more.
Square: Stock of the week
18/05/2021  Square's Bitcoin purchase is more marketing than operations
Tesla: Stock of the week
10/05/2021  If Elon Musk ends up delivering, we might need to raise our fair value to US$1500 a share.
Why Tribeca's so upbeat on stocks
07/05/2021  Banks and resources are poised to deliver dividends, and Treasury Wine Estates and BNPL are worth a look, says Jun Bei Liu of Tribeca's Alpha Plus long/short fund.
Looking for value in emerging markets
05/05/2021  Digital banking, ecommerce and 5G are among the key trends set for rapid growth, says Patricia Ribeiro of American Century Investments.
Cash slashed, Aussie equities up: Why Morningstar updates Model ETF portfolios
04/05/2021  Analysts have made changes to the fixed interest, property, cash and equity allocations of Morningstar's Model ETF Portfolios to take advantage of the current market environment. They've also refreshed some of the funds in the portfolio.
Investing basics: Explaining the disconnect between the stock market and the economy
30/04/2021  The stock market and the economy are not the same. Here's why.
Why deforestation matters for investors
23/04/2021  EARTH DAY 2021: Why should investors care about deforestation and how can it can be taken into account within an investment portfolio? 
The silent killer: How to prepare your portfolio for inflation
21/04/2021  Do investors need to worry about inflation, and how do you prep your portfolio to protect you from it? Morningstar Investment Management's Dan Kemp explains.
ESG investing is about more than feeling good: Morningstar equity research
20/04/2021  Values-based investing is ultimately up to the investor.
2 US wide-moat stocks to buy on a dip
16/04/2021  Amazon.com and ServiceNow are looking increasingly attractive.
Fidelity's Kate Howitt names her 3 top stocks for 2021
15/04/2021  Investment tips from Australian equities fund manager Kate Howitt.
Back to basics: What is income investing?
14/04/2021  What is income investing, why is it important and which investors should focus on it? Morningstar Investment Management's Dan Kemp has the answers.
Hunting for pockets of value in an overheated market: Morningstar
13/04/2021  Morningstar equity strategist Gareth James discusses the great value rotation, why he believes the Australian share market is overvalued and where opportunities still lie for hungry investors.
Vaccine rollout drives energy's rise
12/04/2021  But the sector's current tailwinds are likely unsustainable, so investors should prioritise high-quality businesses with stable balance sheets, says Morningstar's Dave Meats.
Finding value with Kate Howitt
08/04/2021  Kate Howitt oversees Fidelity’s Australian Opportunities fund. She discusses her investing approach, the outlook and where she sees value.
Investing for millennials
07/04/2021  Goldman Sachs's Laura Destribats talks about the millennial investment trend, and why tech and experiences are so important to this generation.
What if I want to buy Bitcoin?
06/04/2021  Remember that the returns on speculative assets like Bitcoin are high risk
EGG, SGF, ZBRA: Foraging for the unloved gems
01/04/2021  Steve Johnson explains why Forager Funds Management has bought and held Enero, SG Fleet and Zebra Technologies and why they're poised for further growth.
Why the 'covid spending economy' will flourish
30/03/2021  Forager's Steve Johnson explains why he's bullish on consumer spending, enterprise software companies, and why he has cashed in on big names like Uber.
Proteomics set for growth, says Kardinia
29/03/2021  Kristiaan Rehder explains why the West Australian biotech is among the top performers in the Bennelong Kardinia Capital Absolute Return Fund.
Should you be worried about inflation?
26/03/2021  And how to make inflation "personal."
Crypto what?
25/03/2021  The how, what, and why of cryptocurrency.
The long and short of an absolute return fund
24/03/2021  An absolute return fund aims to seek returns in all weather. Kristiaan Rehder from Bennelong Kardinia Capital explains how.
3 dividend-paying real estate stocks for your watchlist
23/03/2021  Diversified portfolios, strong balance sheets and healthy payouts. Grant Berry singles out three big contributors to the SG Hiscock Property Income Fund.
AREITs in the time of covid
22/03/2021  SG Hiscock's Grant Berry explains how real estate was affected by the pandemic, how property stocks coped, and the chase for income in an evolving retail landscape.
Have we reached peak video gaming?
19/03/2021  Video gaming has soared under lockdown, can this sector keep growing post-covid? Morningstar analyst Neil Macker takes a look.
Myer: five stars and poised for the rebound
18/03/2021  The retail giant's strong balance sheet will help it navigate the shift to online shopping and capitalise on the return to normal life, says Morningstar's Johannes Faul.
Deliveroo IPO: what you need to know
10/03/2021  Ahead of Deliveroo's IPO, Morningstar analyst Ioannis Pontikis looks at the outlook for the business, its valuation and concerns about gig workers.
2 stocks for the e-learning boom
08/03/2021  E-learning has become the norm for young students and university-goers across the world. Morningstar analyst Michael Field looks at whether the trend is here to stay. 
February Reporting Season Wrap Up with Peter Warnes: Webinar
04/03/2021  Special guest Peter Warnes, our head of equities research, joins the Morningstar Foundations of Investing Webinar series to give his unique take on February Reporting Season and answer subscriber questions.
One year after the market crash, through the ETF lens
03/03/2021  The growth and adoption of exchange-traded funds has only accelerated as a result of the latest market crisis.
Brighter picture for big four banks
01/03/2021  Morningstar's Nathan Zaia on the outlook for the banks, dividend payouts and the move by the Bank of Queensland to acquire ME Bank.
One year on: lessons learned from the 2020 bear market
25/02/2021  The biggest takeaway from that period is not to panic when the market tumbles.
What if...I want to buy a gold ETF?
23/02/2021  From ETFs backed by bullion to miners with more upside potential - here's how to get yourself some gold.
'Full return to normal in 2021'
23/02/2021  If the US is to stage a recovery by mid-year, it will need the consumer services sector to fire, says Morningstar's head of economic research Preston Caldwell.
Google, Facebook versus Aussie news stocks
19/02/2021  Morningstar's Brian Han weighs up News Corp's deal with Google and examines the effect of Facebook's decision to block content from Australian media outlets.
Global real estate as a store of value
18/02/2021  Quay Global Investors' Chris Bedingfield explains how self-storage, data centres and industrial property can offer diversification and growth.
Spotting the 'covid winners'
16/02/2021  Uniti Group and Nextdc are among the companies that SG Hiscock's Hamish Tadgell says have flourished during the pandemic.