By Peter Mauthe When I get the opportunity to share my thoughts in this column, I generally pull from my recent conversations with financial advisers and their clients. Recently, I have had many questions and conversations about the large monetary stimulus (also known as “quantitative easing”) being provided by the central banks of developed countries, mostly about the potential inflation that could result from past and present stimulus. These discussions are often with people who lived through the inflation and high interest rates of the 1970s and 1980s. Despite the years that have passed and the three decades of declining inflation and interest rates we have experienced since, the memories of those times are still as vivid as ever. Don’t let fear disrupt your financial plan When discussing this topic, I start by presenting the following graph created by McClellan Financial Publications. It illustrates how quantitative easing has bolstered investment markets—and the economy—in recent years. Such economic stimulus ripples through the economy and eventually reaches the bottom lines of corporations, supporting higher stock prices in many ways. In my discussions, this is where it becomes evident that many investors have held off reinvesting after the sharp decline in the stock market in 2020 and are now holding back because of their fear of the next round of quantitative tightening. In environments such as these, it pays to have an investment portfolio that has the offensive and defensive tools to be flexible and responsive to market conditions. Our dynamic, risk-managed investment strategies aim to be the building blocks of this type of portfolio. In early 2020, our rules-based strategies and portfolios went on defense as the market decline got underway. The same disciplined approach led our strategies and portfolios to move to offense to take advantage of the sharp market advance off the low. Our strategies and portfolios are designed to respond to market changes no matter what causes them, including quantitative easing and quantitative tightening. Bottom line: Flexible, rules-based, responsive investing can help investors overcome the fear, uncertainty, or doubt that could disrupt their long-term financial plans. What about inflation? Many advisers and investors are concerned that all of this stimulus will result in inflation—and that such inflation will contribute to higher interest rates and lower bond prices. Those of us that lived through the past period of high inflation and interest rates remember both home mortgage rates and yields on money market funds in the teens. During these conversations, I refer to the following graph to illustrate the long-term commodity cycle that helps feed increasing or decreasing inflation. Stocks and commodities have gone through this cycle for more than 100 years. I also use this graph to explain that, from this macroeconomic perspective, inflation is likely to go up somewhere in the future even without central bank stimulus. Flexible Plan uses actively managed alternatives (which include gold and commodities) in building diversified client portfolios. Like all asset classes, alternatives have a time and a place. When looking at the graph, many investors jump to the conclusion that commodities are cheap relative to stocks and, therefore, they should sell stocks and buy commodities. I point out that the last time a similar condition existed, it persisted for nearly 20 years. While we recognize these types of macroeconomic relationships in the strategies we design and the portfolios we build, such relationships are not “action timing tools.” Although this graph does suggest that the stage may be set for commodity inflation to rise in the years to come, it does not mean this is the time for action. Flexible Plan’s approach to portfolio construction includes strategic diversification, dynamic risk management, and rules-based strategies. When the time comes to move more or less into any asset class, these three components of our portfolio construction will respond to market conditions appropriately. Building a flexible, rules-based portfolio for a low cost While we at Flexible Plan monitor macroeconomic data and trends, we do not let fear, uncertainty, or doubt guide the decision-making behind our strategies and portfolios. Every strategy and portfolio developed by Flexible Plan is rules-based and objective. This approach has allowed us to provide thousands of investors with disciplined and dynamic portfolio management that provides active opportunity management and active risk management. For those of you thinking about fees (and who isn’t?), we have created the QFC strategies, which enable us to deliver portfolios that embody all of the knowledge we have built over the past 40 years with a lower fee structure for investors, as well as tax benefits. If you are not currently taking advantage of the QFC strategies, contact us at email@example.com or 800-347-3539, ext. 2, to learn more.