Retirement Planning: The Fed Rate Cut and Inflation

There are many ways that Wednesday’s Fed rate cut could affect your personal finances. But when it comes to yielding wealth, in the long term, the Fed rate cut may not be terribly helpful. After all, in the long term, most rates, like mortgages are more affected by the rate on the 10-year Treasury note.

Consider this (especially in light of retirement planning): A Fed rate cut can pave the way to higher inflation. While September’s rate cut was meant to get the economy under control, and maybe provide a boost to the housing market, some analysts are afraid that Wednesday’s cut was overkill. And CNN Money reports on the possible consequences of the latest Fed rate cut:

The Fed’s actions could very well be ushering in a new era of inflation – and that is horrible news for your retirement portfolio.

Your retirement planning has to take this into account

It is important that your retirement planning take this latest personal finance effect into account. And this means diversification. The stock market is still struggling today after yesterday’s dramatic plunge, so it could be a good time to buy. But you can’t rely only on “safer” investments only. Some of your investments (especially if your retirement is a ways off) need to be more aggressive in order to overcome inflation. And you will also need to diversify in terms of sector.

Retirement planning is not a “set it and forget it” option. Every so often you need to review your asset allocation and make the appropriate changes. Because inflation could be coming to reduce the value of your wealth.