It’s understandable if 2021’s inflation spike, to 7%, felt like a hazing for young advisors. For some 13 years prior to that, the consumer price index hovered mostly around 2%, and even spent three years during that period under 1%. Last year, elevated inflation suddenly turned from a textbook abstraction to a real-life challenge for younger Americans.

Luckily, plenty of advisors who navigated higher inflation during the 1970s and 1980s are still on the job today. So for this week’s Big Q, we asked six veteran advisors: What guidance can you offer young colleagues who are dealing with sustained high inflation for the first time in their careers?

Nancy Daoud, advisor, Ameriprise.

When I came into the financial-services industry in 1981, we had double-digit inflation, and you could get an 18% guaranteed return in a money-market fund. This whole generation just has no clue about any of that. If you’re a young advisor in your 20s, know that this is a phenomenal buying opportunity. Because this too [the recent market slump] shall pass, and you’ll go back up. If you’re already fully invested, don’t you dare touch it, just stay the course.

I do have three millennial advisors in my practice. I do a lot of nurturing and handholding, and they hear my message and relay it to clients. But it is harder for them, because it’s something they have never experienced before. I remember being in that stage where you think, “Oh my God, am I messing people’s lives up here?” You start to question your own confidence. So this is a great opportunity to find a business coach or find a seasoned advisor who can tell you the war stories, explain that life may not be exactly the same as you’ve known it, but it’s still going to be OK.

Seth Finkel, advisor, Neuberger Berman

Too many advisors and investors have not been through these cycles. When I talk to clients, I try to do so in a way where they see me being calm and thoughtful, as opposed to panicking. That may be tougher for a 28-year-old advisor talking to a 45-year-old client, but I think anyone who’s successful in any level in this business should be able to convey competence. 

I would tell younger colleagues not to chase returns by extending duration. That’s a particularly applicable problem now because we’re starting off at an anemic historical yield level. I’ve seen too many bond portfolios come in from other places, and the durations are just too long. Commodities have become a great buzzword when talking about inflation, and I think they have an appropriate use in complementing an existing portfolio. But I would tell an advisor don’t overdo it: Until the past couple of years, commodities had a standard deviation equal to or higher than equities. So they carry a lot of volatility, and I don’t think a lot of investors understand and are prepared for that. And until the past 15 or 18 months, commodities had really muted returns on a five-, 10, 15, and 20-year basis. I would mainly use commodities as inflation protection and as a diversifier.

Debra Brede, founder, D.K. Brede Investment Management

I’ve always liked to look back at what’s happened historically. I think [young advisors] should google inflation rates over time and see what the market returned. If you look back to the 1980s, when inflation was high, those 10 years were a phenomenal time [for returns]. People tripled if not quadrupled their money. And that was the highest inflation since back in 1974. And then even when we had the lowest inflation ever, back in 2015, the market was down 2.2% that year.

Grant Rawdin, founder and CEO, Wescott Financial Advisory Group

You can’t draw on a well of experience that you don’t have, so I think you have to be a student of economic history, [to be able to say] that investors in the past have been able to successfully negotiate through difficult times.

No one knows exactly what’s going to happen. So don’t go into it with overconfidence. Express that there is a path forward, but the more you also express humility—that there are a number of things that could happen and we’re going to continue to re-evaluate—the more confidence it gives clients. It suggests that you’re going to always be thoughtful, and not dogmatic that there’s just one particular way forward.

And understand that there’s inflation in the market, but there’s also inflation specifically for your client. Focus on the impact to your client, whether it’s their cash flow or just how they’re going to make their way through in their investment portfolio. Be thoughtful about what life will be like for them during an inflationary time. They’ll appreciate the fact that you are really caring deeply, and they’ll be much more thoughtful and respectful and accepting of the advice you have to offer.

Louise Armour, advisor, J.P. Morgan Wealth Management

There are industries that perform well during an inflationary environment and industries that are punished. As rates rise, it’s better for financials and for energy. And then you look to, let’s say healthcare, materials, maybe even infrastructure if the president gets his plans through. But inflation pressures stocks. At what point will people decide that rates are high enough to where they’re going to take some of the money that they’d normally assign to equity and dedicate it to fixed income? That transition is going to happen in the next 12 months, so it’s important for the younger generation, who really never considered fixed income as a priority, to focus on when the tipping point is and when it will be important to clients to invest in that area. This is a real awakening for those under, let’s say, 35 years old, because bonds and fixed income have not been something in their vocabulary.

Annette Hellmer, portfolio manager, Johnson Financial Group

We point out the differences that exist today versus prior eras of inflation, and why we think that inflation will moderate. The pandemic obviously wreaked havoc on the world, and there were abrupt reopenings and continued supply chain issues, and now we add fuel to the fire with the escalation of the energy crisis [due to the war in Ukraine]. A lot of those things, we think, are more temporary in nature. We don’t think the current elevated inflation will result in a sustained problem with escalating or double-digit inflation rates like we saw in the ‘70s and ‘80s.

There has always been some amount of inflation. The Fed targets 2%, not zero. Having some amount of inflation is good for a well-functioning economy. You always need to structure a portfolio in a way that it can withstand inflation. When you experience what we’ve been through over the past few months with the spike up in inflation, you see the benefits of having some exposure to areas that maybe have been dormant for a while, whether it’s commodities or even real assets.

Editor’s Note: These responses have been edited for length and clarity.

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