In recent years, there has been a trend among younger investors to close their investment accounts due to concerns over inflation. This may seem logical, as the rising cost of goods and services can make it feel like the value of money is decreasing. However, closing investing accounts over inflation concerns can be a poor decision that could have long-term negative consequences.
Inflation is a normal part of economic cycles and should be expected. It occurs when an economy's overall price level of goods and services increases. While the current 12-month inflation rate is 6.5%, compared to 8% just a few months ago, remember that the long-term average of inflation for the last 100 years is about 3%.
While it may be uncomfortable to see the prices of everyday items rise, it doesn't necessarily indicate that the economy is headed for a recession or a period of prolonged economic hardship.
Another important thing to consider is that closing an investment account may mean missing out on potential gains. Whether it is the stock market or the real estate market, many investors have been able to earn substantial returns by keeping their investments for a long period of time. By closing an investment account, you may miss out on the opportunity to earn a return that could offset the effects of inflation. Furthermore, closing an investment account may also mean missing out on the advantages of diversification.
Instead of closing investment accounts over inflation concerns, adjusting investment strategies to account for inflation may be more beneficial.
You might be tempted to think you can predict markets, pick winning stocks and mutual funds, or allocate properly among sectors, but investors of all generations need to understand the risks – not just be able to regurgitate a Twitter story.
Because most of the time, investors don't have the time to perform the proper research and stay current on how particular investments, industries, or sectors are performing, that's usually best left to a professional. Furthermore – and maybe most importantly – your investments must fit into your financial plan.
Call us to schedule an appointment today to ensure your financial plan is consistent with your goals and risk profile. Remember, you don't necessarily need what your neighbor thinks is the best investment portfolio in the world – you need your best investment portfolio to reach your goals. Dominion Wealth Management can help you get there.
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Source: 2023 FMeX