7 Tips for Protecting Your Finances From Inflation

Is it just a passing phase or here to stay? That’s the question facing consumers who are seeing their purchasing power erode.

There are some steps you can take to protect your finances no matter which way it breaks. Consider buying equities like bank stocks or consumer goods companies that perform well in inflationary periods. Don’t pay off that mortgage early—if we are indeed in an era of sharply rising prices and wages, you’re better off paying it off over time with watered-down dollars. Beware of bonds. If rates rise sharply, their principal value will take a hit.

Economists are split on how long the high inflation will last. Some argue that supply-chain issues caused by the Covid-19 pandemic are temporarily hiking prices, while others say that rising labour costs will result in elevated prices for years.

“That’s obviously the million-dollar question right now,” said Bryan Pinsky, president of individual retirement at AIG Life and Retirement. “There definitely are two camps out there, and there are things going on in the economy that would make you lean one way or the other.”

The Consumer Price Index, which tracks prices for a broad range of products such as gasoline, healthcare, and groceries, rose 6.2% in October from the same month in 2020, the biggest spike since December 1990, according to the Labor Department.

Bruce Brugler, managing director at Tiedemann Advisors, said that in an inflationary environment, “cash is trash” since dollars lose value over time. The problem is that the stock market and real estate have risen sharply in recent months, so investors will have to be more discriminating to find value.

Nevertheless, advisors say there are ways for savers to adjust their investment and personal-finance strategies to preserve their purchasing power. Here are seven tips for living in an inflationary period.

Identify stocks that will benefit from higher inflation or higher interest rates. Banking, consumer staples, energy, utility, and healthcare equities are likely to perform well, says investment advisor Brian Stivers.

Banks would come out ahead if the Federal Reserve eventually raises interest rates to combat inflation, and banks’ spreads between loans and deposits widen. Meanwhile, companies that produce essential consumer goods typically are able to pass on their higher costs to consumers.

Conversely, automotive and housing companies will get stung by rising interest rates that lift borrowing costs for customers. That makes them riskier investments just now.

“I’m a big fan in times like these of sector investing, and that can be done either in individual stocks or with exchange-traded funds,” Stivers said.

Rob Williams, managing director of financial planning and retirement income at the Schwab Center for Financial Research, said International stocks will appeal to investors who are concerned that the dollar will be weakened by inflation.

Shy away from fixed income. If rates climb, then certificates of deposit, fixed annuities, bonds, and bond funds purchased today will look less attractive in the future.

“If the Fed does raise rates, I would be careful about buying any new bonds and probably would wait on the sidelines until those rates start moving up,” Stivers said. “However, there are still some long-term bonds where people are getting yields of 3% or 4%, and you want to hold on to those.”

Similarly, buying a lifetime income annuity is less enticing in an inflationary environment. The monthly check you get for the rest of your life will lose value more quickly with high inflation.

Pinsky, of AIG Life and Retirement, said investors are opting for shorter-duration fixed annuities and equity-indexed annuities, which are tied to the performance of a stock index such as the S&P 500. Equity-indexed annuities provide principal protection for investors with a low-risk tolerance, he added.

Treasury inflation-protected securities, or TIPS, are another option for savers seeking low-risk investments, according to Matt Nadeau, of Piershale Financial Group. With TIPS, the principal increases with inflation as measured by the CPI.

Keep the right sort of debt. Homeowners carrying fixed mortgages with low interest rates are sitting pretty right. If you haven’t already done so, refinancing to lock in low rates is a good idea. If inflation takes off, homes prices are likely to climb and your fixed monthly payment may appear like a real bargain in a few years.

Credit-card debt, on the other hand, is particularly bad in a rising-rate environment. It’s floating-rate debt, and your monthly payments will go up.

Consider commodities. Investing in oil, natural gas, wheat and corn may be good hedges against inflation, said Matt Nadeau, of Piershale Financial Group.

He said ETFs such as the FlexShares Morningstar Global Upstream Natural Resources Index Fund (ticker: GUNR) and the SPDR S&P Global Natural Resources ETF (GNR) give investors a “broad-based opportunity” to take advantage of rising commodities prices, including energy, precious metals and agriculture.

Look for companies that benefit from rising labour costs. Brugler, of Tiedemann Advisors, said energy-service companies and technology companies aimed at reducing businesses’ labour needs might be interesting investments due to high inflation rates.

As an example, he pointed to Toast (ticker: TOST), a cloud-based software company providing a restaurant-management and point-of-sale system built on the Android operating system. As restaurants struggle to recruit and retain workers and are forced to raise wages, technology companies aimed at reducing head count should benefit, Brugler said.

“Think about the sources of inflation, and then identify which companies are helping other companies alleviate that cost pain by providing them with solutions,” he said.

Pull the trigger on essential purchases and charitable giving. If consumers expect to spend money on home goods, renovations, car repairs, or other products and services, they might be better off doing so now, before prices climb even higher, according to Brugler, of Tiedemann Advisors.

Charities also are likely to face higher prices for goods and services in the future.

“To the degree that you’d like your charitable dollars to accomplish something, putting it in the hands of that charity now also makes sense,” he said. “A $1,000 gift today is more valuable to that charity than a $1,000 gift several years from now.”

Brace for rising health costs. Health costs have risen faster than inflation for years. The pandemic, which is driving some health professionals out of the field, could accelerate that trend.

Stivers, of Stivers Financial Services, recommends increasing contributions to health savings accounts, if possible. Workers enrolled in high-deductible health insurance plans typically are eligible for HSAs, which allow savers to set aside money on a pretax basis to pay for qualified medical expenses. Investment gains within HSAs aren’t taxed.

Apple and its suppliers aim to build more than 50 million iPhones in India annually within the next two to three years, with additional tens of millions of units planned after that, according to people involved.

If the plans are achieved, India would account for a quarter of global iPhone production and take further share toward the end of the decade. China will remain the largest iPhone producer.

Apple has gradually boosted its reliance on India in recent years despite challenges including rickety infrastructure and restrictive labor rules that often make doing business harder than in China. Among other issues, labor unions retain clout even in business-friendly states and are pushing back on an effort by companies to get permission for 12-hour work days, which Apple suppliers find helpful during crunch periods.

Apple and its suppliers, led by Taiwan-based Foxconn Technology Group, generally believe the initial push into India has gone well and are laying the groundwork for a bigger expansion, say people involved in the supply chain.

Apple is emblematic of a move among companies worried about over dependence on China to move parts of their supply chains elsewhere, most often to Southeast Asia and South Asia. Diplomatic efforts by the U.S. and its allies to block Beijing’s access to advanced technology and strengthen ties with New Delhi have accelerated the trend.

The first phase of a Foxconn plant under construction in the southern state of Karnataka is expected to start operating in April, and the plant aims to make 20 million mobile handsets annually, mainly iPhones, within the next two to three years, said people with direct knowledge of the construction plans.

A further iPhone-producing mega plant is on Foxconn’s drawing board with capacity similar to the one in Karnataka, although the plans are still in a nascent stage, the people said.

Apple has also chosen India as its site for a manufacturing stage for lower-end iPhones to be sold in 2025. In this stage, known as new product introduction, Apple’s teams work with contractors in translating product blueprints and prototypes into a detailed manufacturing plan. Until now, that work was done only in China.

Combined with plans for expanded production at an existing Foxconn plant near Chennai and at another existing plant recently bought by Indian conglomerate Tata, these developments signify that Apple intends to have the capacity to make at least 50 million to 60 million iPhones in India annually within two to three years, said people involved in the planning.

Annual capacity could grow by tens of millions of units after that.

Foxconn indicated its commitment to India by announcing on Nov. 27 that it was investing the equivalent of more than $1.5 billion in the country, money that people familiar with the matter said would include production for Apple. The announcement didn’t mention the iPhone or name specific locations.

Global iPhone shipments last year totalled more than 220 million, according to research firm Counterpoint, a number that has remained steady in recent years. Because almost all iPhones are made in either China or India, China will continue to account for well over half of iPhone output.

Apple has faced challenges in China this year beyond trade tensions with the U.S., including the Chinese government instructing some officials not to use iPhones at work.

“India’s trust factor is very high,” said Ashwini Vaishnaw, India’s information technology minister.

This year, for the first time, India-made iPhones were introduced on the first day of global sales of the latest model, eliminating the lag with China-made phones.

Supply-chain executives say hourly wages are now significantly lower in India than in China, but other costs such as transport remain higher, and labor unions sometimes resist rule changes sought by manufacturers.

In May, the chief minister of Tamil Nadu state, where Foxconn’s flagship Chennai plant is located, said he would withdraw regulations allowing a 12-hour workday, weeks after the state passed an amendment authorising the longer hours. The chief minister, M.K. Stalin, attributed the decision to opposition from labor activists.

Karnataka state has stood by a decision earlier this year to extend the workday to 12 hours, up from a previous limit of nine hours, though companies must seek approval to do so. A state labor official, G. Manjunath, said new rules also allow companies to employ women on overnight shifts without seeking government approval.

After years of battling local-content rules and other red tape, Apple this year opened its first retail stores in India. Abhilash Kumar, an India-based analyst at TechInsights, said the top-of-the-line iPhone 15 Pro Max was selling well in the country, though it costs about $700 more than in the U.S.

Apple is also making progress in India toward building a network of core suppliers, long a strength of Chinese manufacturing. Officials said this week that Japanese battery maker TDK would build a new factory in India’s Haryana state to manufacture battery cells to power Indian-made iPhones. A TDK spokesman declined to comment.

The moves don’t mean Apple and its suppliers are leaving China. Apple Chief Executive Tim Cook has traveled to China twice this year, stressing the country’s importance as a production hub and consumer market. He visited Luxshare, a China-based assembler that is taking a bigger role in the China portion of iPhone assembly.

On social media, Apple has assured Chinese consumers that iPhones selling in authorised channels are made in China. At an industry event in Beijing that Chinese premier Li Qiang attended in late November, Apple’s booth stressed the company’s business with Chinese suppliers.

Foxconn Chairman Young Liu said in November that China would continue to account for the largest share of Foxconn’s capital investment next year.

Liu has visited India at least three times in the past year and a half, meeting Prime Minister Narendra Modi and other officials. People involved in the planning said Modi’s home state of Gujarat in the west was one possible site of a future Foxconn plant. Meanwhile, the company has other projects in the works in the southern half of the country for electronic components and a plant likely to focus on making AirPods for Apple.

The plant in Karnataka state is under construction on 300 acres of land near the airport in Bengaluru, a southern city that is considered India’s tech hub. Officials involved in the planning said Foxconn has secured approval to invest nearly $1 billion in the plant and is seeking the go-ahead to put in an additional $600 million or so.

Combined with other projects, Foxconn’s investments in the state are likely to reach around $2.7 billion, they said.

Some iPhones are also made at a plant near Bengaluru that India’s Tata Electronics agreed in October to buy from Taiwan’s Wistron. Tata Group is the first local company to take on manufacturing iPhones.

“Apple has created an additional spoke in its India strategy by roping in the country’s largest business group—Tata—to be a part of its manufacturing system in addition to Foxconn,” said India’s junior information-technology minister, Rajeev Chandrasekhar.

—Shan Li in New Delhi and Selina Cheng in Hong Kong contributed to this article.

7 Tips for Protecting Your Finances From Inflation

Advisors tell savers to adjust their personal-finance strategies to preserve purchasing power.

Supplier Foxconn plans to build more factories and give India a production role once limited mostly to China