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Why You Shouldn't Fear Inflation

The Rundown

We’ve all been hearing so much about the dreaded “I” word these days. Inflation. Why is it causing so many issues? Let’s talk about what’s causing prolonged inflation, why we’re seeing markets react, and what is in store for the future. 

First of all, inflation is a natural by-product of a growing economy. In a general sense, normal inflation is a good thing and is to be expected as an economy expands. What we don’t want to see happen is extreme inflation, which causes the price of goods and services to rise higher than the value of the currency that is used to purchase them. This is turn causes purchasing power to decrease and makes our dollars not go as far. 

The Market

Markets are obviously concerned about the extreme inflation over the last 6-9 months and have reacted accordingly. While this extreme inflation hurts the growth rate of an economy, a normalized inflation rate can actually help to make an economy’s growth last longer. While it’s easy to look at the here and now, the truth is that our nation's economy has outpaced historic growth rates for over a decade, and that kind of growth is unsustainable for the long run. Stimulus funds from Covid-19, record low interest rates, and the Russia/Ukraine War have all acted as catalysts to usher in a more normalized era of economic growth. For now, that means potentially slower than average growth for the short-term. 

Where We Go From Here

The truth is that we are in a season of economic transition right now. The Federal Reserve has been tasked with lowering inflation while at the same time not raising rates so much that the economy goes into a prolonged recession. Their hope is to achieve a “soft landing”, which is finding the happy medium between those two outcomes. What we're seeing is a time when investors are also taking things to the extreme as news media headlines usually publish the stories that get the biggest reactions. As a result, the market has gone into “oversold” territory based on these emotional decisions. However, there are still hundreds upon hundreds of great domestic and international companies that are continuing to generate great profits and are a sustainable way to grow wealth as an investor. 

The key to navigating times like these is to rely on the factual information that is released, and not let the media sway you based on emotion. It will take time to stave off the effects of extreme inflation, and we have to remember that it is generally when times look the worst that creates the best opportunities for future growth. In fact, in 11 of the last 15 recessions, the market has still generated positive returns after 2 years and even higher from then after. 

One final pitfall to avoid is the market timing trap. Many investors try to time the market and they almost always get it wrong. Successful investors have patience and discipline. The average investor generated only 3.6% annually during a period when almost every asset class including stocks and bonds did much better. How could this be? While it is not usually comfortable or easy, they learn to sit tight during difficult periods and wait for the better times that always come.

Spiritual Application

The Bible warns us that there will be times of turmoil and to remain steadfast. Ephesians 4:14(NLT) states, “Then we will no longer be immature like children. We won’t be tossed and blown about by every wind of new teaching. We will not be influenced when people try to trick us with lies so clever they sound like the truth.”

Even when we see times of trouble going on around us, we can be assured of God’s plan of provision for our life and for the wisdom and peace that comes when we are in fellowship with him. Don’t rely on the world’s systems and processes to frame your way of thinking. Trust in God alone and he will provide the clarity and strength you need to rise above any situation. 

Evergreen Financial Group is a Fee-Only Financial Planning and Investment Firm located in Billings, MT serving clients in Montana, Wyoming and virtually across the country. Evergreen Financial Group specializes in working with Christian families, including Young Professionals, Current and Future Retirees and Church Staff Members.

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