Perspectives on Inflation

What you should know

The goal of this guide is to provide answers to our clients’ top questions, as well as provide information to help you navigate the market environment.

  • Why are we in a period of high inflation?

    Several factors have combined to drive inflation to its highest level in 40 years; these include: the global pandemic, the US government’s fiscal response, pent-up consumer demand, conflict in Ukraine, and disrupted global supply chains.

    From 1997 through the end of 2020, we've experienced an average inflation rate of just over 2%, but this rate has been outside the historical norm. The low-inflation environment allowed the Federal Reserve to maintain unusually accommodative policies, even during economic expansions, as well as respond to downturns vigorously. 

  • What is the role of the Federal Reserve?

    The Federal Reserve's (the Fed's) mission is to help maximize employment and ensure stable prices of goods and services, which it does by adjusting the federal funds rate up and down.

    The Fed's objective in raising interest rates is to help tame inflation. Historically, it has not been uncommon for stocks to go through bouts of volatility during periods of inflation and higher interest rates.

  • How has inflation impacted where the U.S. is in the business cycle?

    High inflation can lead to rate hikes which can quickly drive the business cycle to a mature phase.   

    Strategic Advisers LLC maintains an up-to-date view on the business cycle, which you can find here: Quarterly Market Perspective

  • What are some considerations for investing during periods of inflation?
    • Inflationary periods may not have as negative an impact on the stock market as you might expect.
      • U.S. and international stocks have the potential to grow through inflationary periods because businesses tend to pass on higher prices to consumers, steadying revenues.
      • Historical returns on stocks, as measured by the S&P 500® index, have been higher on average (10%) during higher interest rate periods than when the Fed is lowering the rate (7%)1. This highlights that higher rates have typically been a reflection of growth and not a deterrent to it.
      • Value stocks have typically outpaced growth stocks when inflation was high and interest rates were rising.2
    • Bonds historically have provided some diversification in times of stock market volatility, especially when their yields are higher.
      • With bonds, Treasury Inflation-Protected Securities (TIPS) have historically performed well as inflation rises.
      • For high-quality bonds, like U.S. Treasuries, higher yields can help drive future returns over time.
      • High-yield bonds, floating-rate bonds, and global bonds historically performed well as rates have risen.
    • Real assets and commodities may hedge against inflation due to increasing demand and rising prices
      • Real estate stocks or real estate investment trusts (REITs) may do well against a backdrop of economic growth and higher inflation.
      • Investments tied to commodity prices have historically benefitted from inflation, as demand rises.

  • Why is having a plan important during times of volatility and inflation?
    • Having a plan is important during all economic environments. Investors who have a mix of stocks, bonds, and short term investments based on their investment goals and time horizon may already have some protection against inflation due to their well-diversified portfolio.
    • Clients can feel confident that Fidelity's approach to planning and market assumptions used in our planning tools are reasonable over longer periods of time. If you are concerned about near-term impacts on your plan, please reach out.
  • How does Fidelity's planning approach account for inflation and volatility?
    • Fidelity can analyze multiple scenarios to provide an estimate of whether an adequate amount of assets—and any other sources of income—may be available during the planning horizon to cover expenses.
    • When running analyses, we look to have 90% confidence in the outcomes, meaning 90% of the time the simulated scenarios will be estimated to provide assets equal to or exceeding the amount necessary to meet expenses throughout the plan.
    • Considering recent and expected volatility, we can further test a plan's resilience by adjusting discretionary and/or essential expenses higher and assessing the impact on plan outcomes.
  • How can investors stay on track for their goals?

    Understanding how emergency funds, insurance, and investment strategies work together can help investors more comfortably address inflation while helping to keep them on track toward goals.

    • Emergency: Investors across all life stages should incorporate emergency funds as a core feature of their financial plan; the amount needed and location of investments in the appropriate tax-deferred or tax-exempt accounts, depends on their goals and life stage.
    • Protection: Protection can take many forms, helping to provide peace of mind for elements of a financial plan. An important role of protection is to help investors feel confident in staying invested through volatility, which may help realize long-term appreciation while offsetting the impact of inflation.
    • Growth: Growth strategies are intended to provide asset appreciation; staying invested even through up-and-down markets can help savings keep pace with inflation and help accumulate wealth.
  • What are some considerations by life-stage?



    • Investors may want to add to their emergency fund to help cover the cost of an unexpected expense.
    • While it may not be wise to leave a lot of investible assets in cash, it's still important to be prepared for short-term liquidity needs.
    • Investors may still need to adjust their standard of living or the amount available for heirs to cover healthcare, especially if care may be higher than the industry average.

    Accumulators (actively growing wealth)

    • Investors may want to add to their emergency fund to help cover the cost of an unexpected expense.
    • It is a general industry norm that investors set aside enough to cover 3 to 6 months' worth of expenses.



    • A diversified investment plan, appropriate insurance solutions, and an estate plan can help address concerns about rising prices, lifestyle, and legacy.
    • Investors' estate plans should be flexible enough to adapt to changes while assisting with the accomplishment of their goals.

    Accumulators (actively growing wealth)

    • Taxes can be one of the main drags on portfolio performance.
    • Tax-loss harvesting and properly locating investments in the appropriate tax-deferred or tax-exempt accounts can help limit the impact of capital gains taxes.



    • For investors that have a solid emergency plan in place, they may consider holding less cash and investing for growth potential depending on their time horizon, goals, and tolerance for risk.

    Accumulators (actively growing wealth)

    • Cash can be counterproductive during inflationary periods, so investors in the accumulation phase may want to invest for growth potential.
    • Taking money out of the market can have a substantial effect on long-term performance; missing out on the market's 10 best days over roughly four decades has historically reduced wealth by as much as 55%.3
  • What are Fidelity managed accounts?

    We work to make investing clear and straightforward, so you can feel more confident in your decisions. Then we take on the work for you and make adjustments as needed.

    For many of our managed accounts, those adjustments are done by our team at Strategic Advisers. Strategic Advisers publishes a quarterly view on the economy which discusses the adjustments they're making within managed accounts. Find the latest Quarterly Market Perspective.

    Fast facts about Fidelity managed accounts:

    • Fidelity can professionally manage investments tailored to investors' unique goals and preferences.
    • Through Fidelity® Wealth Services, clients can work with a financial advisor who can help them invest and plan for their full financial picture.
    • There are a range of preference options available, including mix of investments, a defensive approach, and the types of securities we use to build each account.
    • Where appropriate, we also apply tax-smart investing techniques* throughout the year to help clients keep more of what their investments earn.

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