At Seraphim Wealth Advisors, I have fielded numerous calls in the past few months from clients trying to understand why the market has been so volatile lately. There are several reasons, but one of the most impactful has been inflation. What is inflation? A simple definition from the IMF (IMF.com) states: “Inflation measures how much more expensive a set of goods and services have become over a certain period of time, usually a year.”
Every household is impacted by inflation. Everyday examples impacting households daily include gas and groceries. If you’ve filled up your automobile recently, you have seen the impact of inflation. You have also probably noticed that the usual groceries you buy cost more—that is inflation. Anybody doing home repairs or improvements has seen the cost of lumber and building material skyrocket during the past year or so.
This leads us to ask why markets have been so volatile. One of the Federal Reserve Bank’s main mandates is managing inflation and its impact on the economy. They do this by raising interest rates. A rise in interest rates, primarily the Fed Funds rate, has the impact of slowing down a hot economy and reducing inflation over time, causing uncertainty. This impacts investors because it affects companies and their overall business prospects through a slowdown in investment in infrastructure (buildings, equipment, and human capital). Ultimately, this flows down to the consumer (you). Rising rates slow the economy. Inflation in 2022 has been the highest that it has been in the past 40 years (measured at 8.5% YTD through April 2022). Hence, investing becomes more volatile.
The Seraphim Wealth Advisors team is available to provide education to our clients on how to prudently navigate a volatile market that is being impacted by inflation. Please call for a free consultation.