Protecting and growing wealth during high inflation
Continuing from the past two weeks of articles, we now focus on the remaining two pillars of EnRich Cash, Debt, Risk and Wealth or EnRich CD-RW: that of risk and wealth management.
Risk management
When times are difficult, many households immediately look for expenses to cut. While that may be sound, unfortunately, insurance premiums are often among the first to go.
That can be dangerous. Inflation does not only increase the prices of food and utilities but also raises the cost of hospitalization, medicines, car repairs, home reconstruction and even funeral expenses. A single emergency can easily undo years of hard work. So, instead of canceling policies outright, we need to consider making adjustments.
People need to review existing life insurance policies as some may have accumulated dividends or cash values that can be tapped to help pay premiums and even other expenditures. If maintaining several policies has become difficult, it would be best to prioritize keeping coverage on the breadwinners and policies that protect against catastrophic losses.
For health insurance and health maintenance organizations (HMOs), we need to pay close attention to benefit limits. A hospitalization that was adequately covered five years ago may no longer be sufficient today. This is the time when HMOs that do not have inner limits will prove advantageous. If increasing coverage is too expensive, setting aside a separate medical emergency fund can help bridge the gap.
Homeowners need to revisit property insurance coverage. Construction materials and labor costs have risen sharply in recent months. An insured value that was enough before may now be inadequate to rebuild a damaged home.
High inflation also calls for protecting income. So, developing additional sources of earnings is a plus. Freelancing, consulting, online selling, or monetizing hobbies can provide a cushion against rising living costs. Acquiring new skills and certifications may offer better albeit longer-term returns than many financial investments.
In all situations, our greatest asset remains our ability to generate income.
Wealth management
Inflation punishes idle money. Many believe they are being conservative by keeping large amounts in low-interest savings accounts. But cash is not always king if inflation exceeds the interest earned; purchasing power quietly declines year after year.
The goal, therefore, is not merely to save but to preserve and grow purchasing power. A practical approach is to segregate money according to time horizons.
Emergency funds and near-term needs belong in highly liquid accounts. But money intended for goals that are five or more years away—like children’s college education, buying a house, a major family vacation and retirement—should not necessarily remain in savings accounts.
Automated investing remains one of the best defenses against inflation. Trying to predict the perfect entry point rarely succeeds. Instead, investing fixed amounts regularly through peso cost averaging allows investors to buy more shares when prices are low and fewer when prices are high.
Investors should also revisit asset allocation. Portfolios created when interest rates were low may no longer be suitable. Higher interest rates have made certain fixed-income investments more attractive. Rebalancing periodically allows investors to take advantage of changing opportunities while maintaining desired risk levels. Diversifying through geographical reallocation can also be a plus.
Retirees face a unique challenge. Inflation affects them more because they only have pensions that do not automatically adjust upward. So, rather than withdrawing a fixed peso amount indefinitely, retirees may consider adopting flexible withdrawal rates. During years when markets perform poorly, reducing discretionary spending and postponing major purchases can help preserve capital.
Inflation also encourages us to distinguish between appreciating and depreciating assets. Gadgets purchased today will be worth less tomorrow. Skills, businesses, productive assets and well-selected investments, however, have the potential to generate future income. This is why investing in oneself even in retirement may be one of the highest-return investments available. Learning to use artificial intelligence tools, improving communication skills, acquiring certifications, or mastering new technologies are just some options in investing in oneself that may increase earning power far beyond what most investments can provide.
Finally, inflation reminds us that wealth is not simply about accumulating more. It is about protecting the lifestyle we have worked hard to build. The objective is not necessarily to become richer than everyone else. It is to maintain financial independence despite rising prices.
Storms do not last forever. Inflation eventually subsides. Interest rates rise and fall. Markets recover.
Families that protect themselves against life’s uncertainties and continue investing patiently place themselves in a position not merely to survive difficult periods but to emerge stronger when conditions improve.
Send questions via “Ask a Friend, Ask Efren” free service at personalfinance.ph, SMS, Viber, Twitter, LinkedIn, WhatsApp, Instagram and Facebook. Efren Ll. Cruz is a registered financial planner and director of RFP Philippines, seasoned investment adviser, bestselling author of personal finance books in the Philippines and a YAMAN Coach.
