Couple looking at expenses

These days, inflation worries are everywhere, and it’s easy to see why: the latest reads of the consumer price index (CPI) are sobering. Consumer prices across Canada rose 6.8% in April from a year ago.

This adds up to a serious erosion of purchasing power. It’s especially alarming if you’re on a fixed income, retired or near retirement with a reliance on your portfolio for income, or trying to save up for a large purchase such as your first home.

If you’re concerned about the impact of inflation on the cost of living, you’re far from alone: according to a March 2022 poll by Ipsos, 85% of British Columbians are concerned that inflation will make everyday things less affordable.

The good news is that there are some simple strategies you can use to counteract rising prices and give yourself greater peace of mind.

1. Consolidate debt – and delay big-ticket purchases

It goes without saying, but if you’re carrying a high credit card balance and other high interest debt, talk to your lender about consolidating it in a line of credit for the lowest interest rate you can secure.

And if you’re looking at putting off purchases to save cash, a good approach is to let the latest CPI report from Statistics Canada guide you, by avoiding some of the products whose prices have risen the most. For example, the price of a new car soared 7% year over year in March 2022, while furniture spiked 13.7% – both areas where you might want to consider delaying spending if you can. (Used cars are no bargains, either: their prices have shot up nearly 50% in the last year.)

It’s also a good time to consider a “staycation,” rather than travelling great distances, as the cost of hotel rooms jumped 24.4% and airfares have soared 8.3%. You may also want to consider delaying any unnecessary home renovations, with prices for lumber and building supplies also well above their pre-2020 level.

2. Audit (and cut) the small stuff

Beyond large purchases, it pays to look closely at everyday expenses. Saving a small amount here and there may not seem like much, but it can add up and reduce waste.

Begin by examining recurring monthly subscription fees and memberships, such as streaming services – many of which you may not be using that much. If you’re signed up for multiple services, that can add up quickly. You may also be able cut the cost of your cable TV package, if you have one, or your cellphone plan, as well.

Other basic cost-cutting options include cooking at home more often, reducing food waste, brewing your own coffee, or other small cuts across your monthly budget. None of these changes are revolutionary, but they’re still worth going over again, as rates rise and the cost of living generally gets more expensive.

3. Real estate: Let lifestyle take the lead, and think long term

Vancouver home prices are holding their own, up 19% in April from a year ago, despite two rate increases from the Bank of Canada during this latest hiking cycle. But the number of transactions fell sharply, to 3,232 from 4,908 a year earlier, according to the Real Estate Board of Greater Vancouver. This suggests the market is starting to respond to higher borrowing costs.

What does this mean for buyers and sellers? First, resist the temptation to time the market. When it comes to real estate, you need to put lifestyle needs first – so if you have to downsize for retirement or upsize because you need more room for your family, those needs should take precedence.

Further, with real estate, as with stocks, it’s important to look beyond the daily headlines. Real estate has always proven to outperform cash over a period of years, but you have to hold for the long term and ride the peaks and valleys of price appreciation. Some years real estate will soar. Others it will trail inflation.

… But now could be the time to cut loose that second property

With the market likely to cool further as interest rates rise, now could be a good time to consider selling that vacation property you don’t use as much as you’d like and moving those funds to a portfolio of income-generating investments. This has a double benefit, as it boosts your cash flow while giving you an inflation hedge, as you’ll no longer need to manage the rising costs of maintaining and renovating the property.

Couple meeting with advisor

4. Invest in stocks with pricing power

When it comes to your portfolio, it’s important to focus on companies that can pass on their own rising costs to consumers. In Canada, companies like banks (which also profit as rising rates increase their loan income), telecom and energy firms leap to mind.

The Toronto Stock Exchange’s weighting toward such companies is one reason why it has outperformed the S&P 500 this year, with the index down about 6.5% year to date as of this writing, versus a 17% decline for the S&P 500 and a 27% plunge for the tech-weighted NASDAQ

5. Work with a financial advisor – your best inflation-fighting tool

Before executing on any of these strategies, it should be said that, given the highly uncertain environment of the day, this is a critical time to speak to your financial advisor.

Your BlueShore Financial advisor can you help adjust for inflation by running different scenarios on your financial plan at different inflation rates, so you have a clear picture of where you stand. That will help you plan for a period of prolonged inflation, should that be the case this time. And there’s a good chance it could be, with the conflict in Ukraine and supply chain problems playing major roles in today’s high inflation – and those issues could take years to work out.

Now more than ever, it’s critical to have an experienced advisor on your side, to make sure your portfolio has the right allocation for your age, risk tolerance and goals – and to help insulate your wealth from inflation.

BlueShore Financial, Financial Advisor, Raphael Ambrozewicz

Raphael Ambrozewicz

Financial Advisor

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The information contained in this article/video was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or a solicitation to buy or sell any mutual funds or other securities.

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