331 | How Inflation Affects Your Investment Strategy

The Federal Reserve is projecting 3.4% inflation, but the Consumer Price Index is already hitting 5%. That gap matters more to your portfolio than you might think. Brad and Jonathan sit down with Karsten Jeske (Big ERN) from Early Retirement Now to dissect what rising inflation means for your investment strategy—and whether you need to change course. With costs rising across sectors and media coverage intensifying, the core question is simple: Is this a temporary spike, or a sustained shift that demands action? Two Indexes, One Problem The conversation starts with the difference between the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE)—two measures that paint different inflation pictures. The CPI shows inflation around 5%, significantly above the historical 1-2% range, while the Fed's PCE projection sits at 3.4% for the year. [00:03:55] Equities vs. Bonds in Inflationary Periods Historically, equities outperform bonds when inflation rises. For younger investors, the recommendation is straightforward: maintain a 100% equity position and dollar-cost average through volatility. [00:34:14] Equity investors may benefit long-term, while bondholders face real return erosion. [00:31:10] Real Assets as Hedges Preferred shares and real estate emerge as recommended hedges against inflation risk. [00:40:00] For those new to the FIRE path, the advice is clear: avoid accelerating mortgage payments. [00:47:07] Real estate has historically performed well in inflationary environments. [00:48:01] The Gold Question Gold can hedge against equity downturns but offers limited long-term growth potential. [00:55:08] While gold retained value during past equity drops, its historical returns lag equities significantly over longer periods. [00:55:00] Monitoring the Fed The Federal Reserve's monetary policy decisions will signal inflation's trajectory. [00:22:32] Understanding sequence of returns risk—how the order of investment returns affects portfolio sustainability—becomes especially relevant for retirees in inflationary periods. [00:44:04] Key Resources Safe Withdrawal Rate Guide: https://earlyretirementnow.com/withdrawal-rate-series/ [00:58:21] Essential Reading on Inflation and Investments: https://choosefi.com/investment-books/ [01:00:10] Chapters Introduction to Inflation [00:01:09] Understanding Inflation Indexes [00:03:55] Practical Implications for Investors [00:30:41] Hedging Against Inflation with Various Assets [00:53:00] Conclusion [01:01:40] ▶ Listen Next: Ep. 332 — How to Use Your Tax Return as a Financial Planning Tool | Essential Listening