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Fight inflation: Invest for growth and income

Charlie Wick, Tina DeWitt and Todd DeJong
Vail, CO, Colorado

Even if you don’t typically follow economic news that closely, the fact that oil prices are now hovering near the $110-per-barrel mark has probably caught your attention. If not, it should, because stratospheric oil prices will almost certainly affect you as a consumer ” and it may also cause you to review your investment strategies.

If you drive, you’re aware of oil economics every time you fill up at the pump. But even if you don’t own a car, you’ll find that oil ” or at least products made from oil ” is leaving a big footprint in your life. From computers to clothing, pens to paint brushes and shampoo to shower curtains, you use products made from petroleum all the time, and every day. So, given the stratospheric prices of crude oil, don’t be surprised to see the prices of many of these products start to climb.

You might be less concerned about the potential inflationary pressures caused by rising oil prices if your income was rising significantly. But that may not be the case.



Over the past several years, wage growth has been relatively low. Factoring in inflation, weekly wages were just 2.2 percent higher in September 2007 than in March 2001, according to research compiled by the Center for American Progress.

So, here’s the situation in a nutshell: While prices may be going up, your wages may be stagnating. That’s not a formula for achieving your long-term goals, such as a comfortable retirement. To address this problem, you’ll need to look at another component of your financial picture ” your investments.

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Consider these suggestions:

– Invest for rising income. Fixed-income vehicles, such as bonds and Certificates of

Deposit (CDs), may well have a place in your portfolio, but they might not keep you ahead of inflation. That’s why you may want to consider investing in dividend-producing stocks. Some of these stocks have actually increased their dividends for more than 25 straight years. So, if you’re seeking ways to stay ahead of inflation, here’s one place to look. (Keep in mind, though, that even stocks with long histories of paying dividends are not obligated to do so in the future, and they may cut dividends, or not pay them at all, in any given year.)



– Invest for growth. To stay ahead of inflation for the future, you’ll want investments that provide the opportunity for long-term appreciation. That means you should have a certain percentage of your portfolio devoted to growth stocks.

It’s true that these stocks can be volatile; their prices will go up and down, and it’s possible you could lose some or all of your principal. But you can reduce this risk, and increase the chances of staying ahead of inflation, by purchasing an array of quality growth stocks ” those issued by companies with solid management, competitive products and strong balance sheets.

No one can really predict how high oil prices will rise, how long they will stay elevated and how much they will affect overall inflation. But you shouldn’t sit around and wait for these answers. Instead, work with your financial adviser to find income and growth opportunities.


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