How does
the cost of living
effect your investments?

By Jack Etzel

Louis J. D’Angelo
D’Angelo Financial Services

For this May Perspective we spoke with a well-qualified North Hills resident, Louis J. D’Angelo. Lou, his wife, Mary, and their three daughters reside in Hampton, and he’s moving into his new D’Angelo Financial Services office in McCandless this month. He is an attorney, a financial planner, a registered investment advisor representative and registered representative with Raymond James Financial Services, Inc. He earned a B.S. from the Indiana University of Pennsylvania and a J.D. from the University of Maryland School of Law. He is the author of two published books, The Granger Brothers In Their Own Words, a true account of the civil war, and Planning Your Financial Success Begins Here.

North Hills Monthly Magazine: Does the rising cost of living effect personal investments?
Lou D’Angelo: When we talk about the rise in the cost of living, those on a fixed income are who come to mind first, but in reality most of us are on a fixed income unless you can walk into the boss’s office and say, “I need more money” whenever you want. But, with truly fixed income people in mind and dependent on Social Security, perhaps a disability payment, and barely increasing with consumer price index adjustments we have to look at what kind of expenses a person in that position would incur: that would include home heating bills, electric bills, grocery bills, the real necessities of life, including gasoline to travel to visit other family members or friends. Have those appreciated more than three percent over the last ten years? Gasoline has arguably gone up a hundred percent in the past year or so.

NHMM: What about much younger people who are looking to retire, perhaps, decades from now? What’s a common mistake they might make when it comes to retirement investments? And, does the rising cost of living effect that?
D’Angelo: The answer is yes, it does. Some people have the misperception that “Well, if I plan for my retirement at a rate of three percent inflation, I should be okay.” But increases on those items you’re likely to have to pay for someday, will throw your spending plan out of whack. They might, in many cases, be thinking about sending children to college, and that is – at best – trying to hit a moving target, because of the rate of inflation associated with education costs. College costs for a long time were clipping along at about six percent or less, and then all of a sudden several years in a row, bang, bang, fifteen percent, and another fifteen percent. What we have to do then is run new projections based on these much higher tuitions.

NHMM: Someone could be in for a rude awakening.
D’Angelo: Absolutely. If you’ve been tracking along in an education savings plan for four or five years, and you’re generally hitting your number, say, at the end of the year your advisor tells you that you’ll need $27,000, and you really do have $27,000, everything looks fine. But at the next review you realize that the cost of education has gone up so much that you’re actually behind. That’s unnerving. And, the longer off the future goal is, the more that variable of inflation is going to have an impact on you hitting your goal. Someone who has a good paying job, and is trying to accumulate money for education or retirement really has to pay attention, and not just run the numbers once or twice. It might be time for that child, for example, to go to college and they realize when it’s too late, that they don’t have enough invested because they weren’t paying attention all along. And, it’s not just the price of tuition, but also the price of everything else associated with college costs.

NHMM: Is it tough to teach some clients how to budget?
D’Angelo: I don’t call it a budget when speaking to clients. I talk about spending plans. It’s not my job to put someone on a budget, or ask him or her how much he or she spends on coffee. It’s a function of how much does it take to run your household, and where are those dollars going? Then, you look at the rate of inflation on those categories of expenses.

NHMM: As the cost of living continues to rise, I assume what you invest in must change, also.
D’Angelo: That’s an excellent observation. Every discussion I have with my clients revolves around the type of investments that are available. When you’re buying investments, we talk about the cost of the investment, the fees associated with it, and the risk of that investment. We discuss these negatives first, because we don’t want surprises. Deep down inside we would all like to have performance investments returning high interest with no risks, plus guarantees. That’s not reality. People remember the ‘70s fondly with 14% returns on CDs that were guaranteed by the government, but they forget that we were in a 19% inflation era.

NHMM: And, even you can’t predict the future.
D’Angelo: No, but even if I could every single client is different and that alone precludes a cookie cutter approach.

Note: Lou D’Angelo is a financial planner with Raymond James Financial Services, located at 2700 Smallman Street, Pittsburgh, PA. Lou can be contacted at 412-281-3119.