Christine Benz on the industry problem keeping her awake at night

Christine Benz, director of personal finance and retirement planning for Morningstar, is known for her insightful research and informative columns and also co-hosts a regular podcast, The Long View, in which she and Jeffrey Ptak, director of the Morningstar Rating, interview pension and finance experts. .

Reversing roles in our VIP series a bit, we emailed Benz a series of questions that pertained not only to her professional knowledge, but also what she does outside of the clock.

1. What market indicator or industry statistic are you monitoring most closely at the moment and why?

Christine Benz: I would be lying if I said anything other than CPI right now. Inflation is a priority for everyone right now and a major talking point in my professional life, [as well as] when I’m out and in the real world.

People know about price increases so viscerally, and they have a lot to say about them!

2. How has this statistic changed recently and how do you think it will change next year?

Inflation has not been a problem for a good decade and more – generally well below historical averages. When a trend persists for this long, there is a natural tendency to assume that it will always be so.

I’m not in the business of forecasting, but I expect some of the current inflationary pressures to subside soon. And what is under-discussed is the leverage that workers currently have – rising wages are a compensating force that helps offset inflation.

3. What would you suggest that advisors do now or consider doing in the future about this?

It’s a good idea to think that inflation affects both sides of the ledger – expenses and income. On the expense side, how heavily is the customer spending on things that swell quickly, like used cars or new homes in Austin or Nashville?

Jason zweig [of The Wall Street Journal] wrote a long time ago about how we each have our own inflationary experience based on our spending baskets, and it’s such an important concept. He called it “me-flation”; in other words, inflation is not the CPI, and we can refine it.

And then on the income side of the ledger, to what extent is the person’s purchasing power protected? If this is someone who enjoys a strong adjustment to the cost of living from their job and has a portfolio rich in stocks and has no plans to retire soon, I would say that it is rather well protected.

On the other hand, if it is a senior who has a lot of fixed rate investments that are spent on living expenses, then inflation is a bigger risk factor and the portfolio needs to be. covered accordingly.

4. Who or what critical information source are you monitoring to track this issue?

Data from the St. Louis Fed gives a good overview of what’s going on in the economy as well as historical data. I often check TIPS break-even rates on the [Federal Reserve Economic Data or] FRED, as well as the yield differential between lower quality bonds and treasury bills. (I’ve been worried about the search for yield for a long time, and I’ll be right in the end …)

We also have a lot of great market data on Morningstar.com. A quick overview of the relative attractiveness of stocks is our Fair market value chart, which is a merger of the prices / fair values ​​that our equity analysts have for their hedging universe. Unsurprisingly, they think stocks are a bit pricey right now.

5. Are you changing any of your work habits at this stage of the pandemic?

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