Inflation is back, and many younger investors are trying to wrap their brains around the idea that prices could keep going up.
Hartford Funds recently described their views about the archenemy of retirement savings in a summary of results from a survey of 908 U.S. investors conducted in February, Russia invaded Ukraine. The survey participants had at least $75,000 in investable assets.
About 94% of the participants said inflation is an area of concern, but Hartford found a big split between results for participants ages 42 and older and younger participants.
Only 47% of the older participants agreed that the Federal Reserve Board's new efforts to push up interest rates will get prices under control. About 71% of the younger participants predicted that Fed intervention would work.
Hartford also found that younger survey participants were much more likely to see investments in stock and real estate as good defenses against inflation.
Joe Boyle, the fixed income product manager at Hartford Funds, is helping the asset manager navigate through the new, unfamiliar seas.
Via email, we asked Boyle questions about how he sees inflation, and investors' response to inflation.
1. How do you define inflation? Do investors know what it is?
Technically, inflation is the rate of increase in prices of goods and services over a given period.
However, up until recently, the increases have been benign and even decreasing in some instances, driven by several factors, such as technology.
With inflation at levels not seen since the early 1980s, this phenomenon is a new experience for many in the younger generations.
This, in part, may be why they can't define it: Our recent research found that 46% of younger investors could not accurately define the term.
A simple example would be flat screen TVs. They are a fraction of what they cost originally, and everyone has one. Cell phones also fall in that category.
Twenty years ago, they were a couple hundred dollars, non-essential, and didn't have nearly the technology of today.
Now, they might be a little more expensive, but they are completely essential, and the technology gets better and better.
Historically, inflation has been immaterial for quite some time, and any spikes in food and gas have been somewhat short-lived; the last time the east coast saw gas over $4 that we can recall was in 2005, following the devastating effects of Hurricane Katrina, during which oil was spiking.
2. What kinds of inflation definitions and benchmark statistics interest you, and why?
We pay particularly close attention to 1. food and 2. energy, even though it is standard to take them out of the inflationary measures because of the volatility that exists.
But, at the same time, who doesn't need to eat? Who doesn't need gas to drive to work and take care of other day-to-day errands? Who doesn't need to heat their home?
Which transportation company doesn't need to fuel their trucks?
Shocks to these basics is what makes people pay attention.
We understand that there is a constant demand component that plays into the smoothing of inflation, but the constant and consistent demand is why it's so noticeable to the average person.
Additionally, we are paying particular attention to the wage-growth statistics, as they tend to be stickier, but lag.
