ETFdb Logo
ETFdb Logo
  • ETF Database
  • Channels
    • Active ETF
    • Alternatives
    • Beyond Basic Beta
    • China Insights
    • Climate Insights
    • Commodities
    • Core Strategies
    • Crypto
    • Disruptive Technology
    • Dividend
    • Dual Impact
    • Emerging Markets
    • Energy Infrastructure
    • ESG
    • ETF Building Blocks
    • ETF Education
    • ETF Strategist
    • Fixed Income
    • Free Cash Flow
    • Future ETFs
    • Global Diversification
    • Gold & Silver Investing
    • Innovative ETFs
    • Institutional Income Strategies
    • Leveraged & Inverse
    • Managed Futures
    • Market Insights
    • Megatrends
    • Modern Alpha
    • Multi-Asset
    • Night Effect
    • Portfolio Strategies
    • Retirement Income
    • Richard Bernstein Advisors
    • Tax Efficient Income
    • Thematic Investing
    • Volatility Resource
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Sector Tracker Tool
    • ETF Database Categories
    • Head-To-Head ETF Comparison Tool
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
    • Indexes
    • Mutual Fund To ETF Converter
    • ETF Data for Journalists
    • ETF Nerds
  • Research
    • First Bitcoin ETF
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Index Education
    • Index Insights
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Multimedia
    • ETF 360 Video Series
    • ETF Trends on Videos
    • ETF Trends on Podcasts
    • ETF Prime Podcast
  • Company
    • About Us
    • Swag Store
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. Retirement Income Channel
  2. Managing Cash on the Sidelines to Mitigate Inflation
Retirement Income Channel
Share

Managing Cash on the Sidelines to Mitigate Inflation

Nationwide Investment Management GroupDec 14, 2022
2022-12-14

By Advisor Advocate Editorial Team

Key Findings

  • A quickly accelerating inflation rate coupled with periods of unprecedented market volatility and negative returns have many clients holding large portions of their assets in cash — particularly in money markets.
  • But not staying invested in the stock market during periods of high inflation could end up adversely impacting their financial plans.
  • Finding investment options that balance your clients’ desire for protection with their need for growth may help them feel more comfortable about finding an investment strategy that can help them plan for the future

Inflation Is on the Rise

The inflation rate accelerated at its fastest pace in more than 7 decades last year. It has continued to climb in 2022, with some economists believing that inflation will settle at 3% to 4% and remain at that level for decades.1 Sudden surges in inflation, such as the one we’re currently experiencing, can lead to periods of unprecedented market volatility and negative returns.

These factors are two of the biggest fears American families have about the future, according to a recent Nationwide® poll.2 Of those surveyed, 90% expect inflation or their living expenses to rise within the next year. And 88% agreed or strongly agreed that there would be a recession or economic downturn during that same period.

Another poll3 shows that these concerns already have clients adjusting their behaviors across their everyday lives. 48% of people say they’re eating out less, 35% report they’ve been driving less and 22% say they have been, or are considering, reducing their 401(k) contributions over the past 12 months.

Managing Cash on the Sidelines to Mitigate Inflation

Content continues below advertisement

Managing Cash on the Sidelines to Mitigate Inflation

For many clients, these concerns can also trigger an urge to pull out of the stock market. Prior inflation spikes, when driven by unsustainable shocks like the ones we’re seeing now, have generally given way to sharp pullbacks in investing.4 And the nearly $4.46 trillion5 currently parked in U.S. money market funds is a clear indicator that this is already an issue for many people.

Cash on the sidelines

When clients avoid investing and instead hold a large portion of assets in cash or other low-risk investments (such as money markets, certificates of deposit and bonds) during periods of high inflation, it could ultimately work against their long-term goals.

Staying invested in the stock market, even during times of unprecedented volatility, can help your clients outpace inflation by earning real returns that can build wealth. “Real returns” refer to the returns on their investments after you take inflation into account.6

For example, if the return for a bond mutual fund is 2% but inflation is 7%, the investor sustained a real return of -5%. Therefore, portfolios overweighted in cash and bonds may underperform during periods of high inflation. This means that with qualified assets sitting in cash, retirement savings are at risk of being outpaced by inflation.7 While this scenario can have a negative impact on all investors, it poses an especially large threat to clients who are nearing or in retirement.

Institutional investors and hedge funds have moved to the sidelines, with cash levels at the highest since 9/11 and equity allocations at the lowest level since the financial crisis. Retail investor flows have told a different story, with the “buy-the-dip” mentality still in play for much of the year. Observers have expected a capitulation of retail flows before a bottom can be reached, but it is possible that the capitulation doesn’t come and a shift in attitudes and positioning by institutional investors can drive a bounce. The degree of pessimism and institutional money on the sidelines, teamed with improving technicals and seasonality, could be a catalyst for a market rebound.

— Mark Hackett, Chief of Investment Research for Nationwide’s Investment Management Group

Putting your clients’ money to work for them

We may not know when a rebound will happen, but it’s important to remember that since 1926, the S&P 500® has had an average annual return of 10.49%.8 The goal would then be to help clients looking to mitigate the impact of inflation on their portfolio find investing strategies or solutions that they feel comfortable with and take advantage of this opportunity.

Several investment options, such as registered index-linked annuities (RILAs), are available to help protect your clients’ retirement savings while also providing them with portfolio growth potential.

RILAs help limit your clients’ downside exposure, which is set to a level that they choose, while still providing them with tax-efficient growth opportunities through the performance of an underlying index or indexes.

This unique combination of protection and performance potential may help your risk-averse clients feel more comfortable addressing their retirement planning needs, even in uncertain markets. With this in mind, it might be prudent to discuss a RILA solution with your clients today. You can also leverage Nationwide’s comprehensive services and support to stay up to date on market insights investor inflation concerns help keep your clients’ financial plans on track.

Citations/Disclaimers
1 “Will Inflation Stay High for Decades? One Influential Economist Says Yes,” The Wall Street Journal (March 9, 2022).
2 “Family Finances Flash Poll,” Nationwide Financial (May 2022).
3 “Inflation Flash Poll,” Nationwide Financial (February 2022).
4 3rd Quarter 2022 Nationwide Market Insights (data as of June 30, 2022).
5 “Cash Retakes Its Crown as the Fed Wrestles With Inflation,” Katherine Greifeld, Bloomberg (September 30, 2022).
6 investor.gov
7 “Retirement Headwinds White Paper,” Nationwide Retirement Institute (April 2022).
8 “Compound Annual Growth Rate (Annualized Return)”, Moneychimp.com (accessed March 14, 2022). The Standard & Poor’s 500 Index acts as a benchmark of the performance of the U.S. stock market overall. Individuals cannot invest directly in an index
This information is general in nature and is not intended to be tax, legal, accounting or other professional advice.
The information provided is based on current laws, which are subject to change at any time, and has not been endorsed by any government agency.
Annuities have limitations. They are long-term vehicles designed for retirement purposes. They are not intended to replace emergency funds, to be used as income for day-to-day expenses or to fund short-term savings goals. Investing involves risk.
Except where otherwise indicated, the views and opinions expressed are those of Nationwide as of the date noted, are subject to change at any time and may not come to pass.

Nationwide, the Nationwide N and Eagle, Nationwide is on your side, Nationwide Retirement Institute and The Advisor Advocate are service marks of Nationwide Mutual Insurance Company. © 2022 Nationwide

AAM-1155AO

Loading Articles...
Help & Info
  • Contact Us
Tools
  • ETF Screener
  • ETF Analyzer
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Performance Visualizer
  • ETF Database Model Portfolios
  • ETF Database Realtime Ratings
  • ETF Database Pro
More Tools
  • ETF Launch Center
  • Financial Advisor & RIA Center
  • ETF Database RSS Feed
Explore ETFs
  • ETF News
  • ETF Picks of the Month
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Best ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Legal
  • Terms of Use and Privacy Policy
  • © 2023 VettaFi LLC. All rights reserved.
Follow ETF Database
Follow ETF Database

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X