3 Questions for Investing Retirement Money in 2022

Investing in 2022 is scary because of one word that we’re all hearing: inflation. Today, we’ve had the pleasure of discussing how to secure your retirement through smart investments. One topic that we’ve seen come up a lot is investing retirement money.

But we want to go a bit deeper than just one question to help you better understand retirement and investing.

3 Questions for Investing Retirement Money in 2022

1. How Will Inflation Affect My Retirement?

In 2021 and 2022, we’ve seen some very high inflation years. We’re seeing 7% and 8% inflation, and when stimulus packages from the coronavirus hit, it led to the printing of a lot of money. When more money enters the economy, inflation spikes.

What we’re experiencing right now is a result of this additional money flooding the market.

When you’re dealing with retirement planning, you’re thinking long-term – often 30 years. Of course, planning out your retirement should account for inflation, but we can’t assume that inflation levels will stay at 8% because it’s far too high.

In fact, any plan that you run is unlikely to withstand 30 years of compounded inflation at 8%, meaning you wouldn’t have any money left. Honestly, inflation doesn’t bother me as much as it does other people right now because:

  • Over the last 10 – 12 years, inflation has been very low at 1% to 1.5%
  • Looking at historical data over the last 100 years, inflation is 3.2%

So, when you look at everything, we see that inflation was:

  • 11.3% in 1979
  • 13.5% in 1980
  • 10.3% in 1981

In between many periods, we see 5%, 8% and 9% inflation. However, in 2009, we hit a period of deflation where we had –4% inflation. While living in the moment of higher inflation, it’s very difficult to understand averages because we’re seeing sticker shock everywhere we go.

But based on the law of averages and what we’ve seen in the past, inflation should come back down.

A retirement financial plan that is actively managed will account for inflation and take steps to help combat it if it’s a long-term problem. However, while inflation may remain for the next few years, it will eventually fall back down.

2. Should I Be Investing When the Market is Uncertain?

People are concerned with investing right now. As financial advisors, we know that there are times, like when the pandemic hit, that we should be invested. However, the answer to this question isn’t easy.

Things can change from one week to the next, where investing in the market is good or bad.

Starting in 2022, we saw a lot of volatility. Fast-forward to recent weeks, and we’re amid Ukraine and Russia at war. That has thrown a bit of turbulence into the market.

Market volatility is good and bad.

If the market falls, it may be a great time to invest heavily. Right now, we’re about 70% cash because we needed to take a step out of the market. We still have 30% of funds in the market. If there is no demand or too much supply, you should consider exiting the market.

A few key points:

  • If you’re like us, you believe there are times to be invested and times to be on the sidelines
  • If you don’t care whether your account drops 30% to 40%, stay in the market

You should be invested in market volatility, but you need to be ready to pull money out and sit on cash, too.

3. Are Bonds a Good Investment Right Now?

Bonds are in a rough spot right now. If you read the news headlines on bonds, we’re in a bear market where bonds have struggled for a few years. How do we handle this? In traditional markets, you invest in:

  • Bonds
  • Stocks

Interest rates are going up, and bonds also take a hit when this happens. Between February 2021 to 2022, the benchmark index for bonds fell 5% to 5.5%.

Are bonds a good investment right now?

There’s a small place for them, but we don’t want to get locked into a bond for a long period of time because conditions for bonds simply aren’t favorable at this time. You may find a few short-term options to fill the gap, though.

In fact, we do suggest some bond alternatives to our clients.

But we want you to realize that in the investment world, there are:

  1. Risks
  2. Liquidity
  3. Safety

Unfortunately, you cannot have all three. There are no investments that are risk-free and 100% safe. Instead, the best we can do is to limit risks, increase safety and have some form of liquidity.

Often, alternatives offer some form of safety and low risk, but you’ll give up some liquidity.

In fact, in one of our upcoming podcasts, we’re going to go deep into bond alternatives. The topic is vast, and it’s one that we want to cover in detail for you.

Click here to access our complimentary video titled: 4 Steps to Secure Your Retirement.