Ken Moraif, Retirement Planners of America Senior Retirement Planner, sits down with Yahoo Finance Live to talk about retirement strategies to combat inflation through stocks, volatility, and the Fed's monetary policy around interest rate hikes.

Video Transcript

EMILY MCCORMICK: Welcome back. Let's get one more check on where markets closed about 26 minutes ago, taking a look at the three major stock indexes. We can see a lot of red across the screen. The Dow Jones Industrial average down by more than 500 points, or about 1.4%. The S&P 500 down about 85 points, or 1.9%. And the NASDAQ composite down by about 2.8%. Now the S&P 500 closing both today's session and the week lower, as we've seen volatility renewed across risk assets.

But shifting gears now with consumer prices rising by 7 and 1/2% on an annual basis, investors are having to get savvy to make sure their assets aren't getting crushed by inflation. Ken Moraif, Retirement Planners of America senior retirement planner, is here to break down some strategies for hedging against and beating inflation. This coming as part of our retirement series brought to you by Fidelity Investments. Ken, thank you so much for joining us this afternoon. Where do you think investors should be looking in particular right now as opportunities to outpace inflation?

KEN MORAIF: Well, you know, I'm a student of history, and I got into-- I don't know if you can see this, but I got into my DeLorean. And I went back to 1982, the last time we had the worst inflation, that this inflation now seems to be actually eclipsing, and looked at what happened back then and how would you have addressed that strategically during that time. The interesting thing is that when you have a lot of inflation, what happens is that as prices go up, companies want to protect their margins. So what they do is they raise their prices as well. And the dollar amount of their profits goes up, even though if you take inflation out, it really did not go up.

But stock prices generally are a reflection of profits. So if profits are being inflated, then the stock prices will be inflated as well. So generally speaking, the best investment vehicle that you have to combat inflation with are stocks. And we've seen what they've done recently. Now we've got volatility right now, but stocks tend to be the best inflation fighter that you have, historically speaking.

BRAD SMITH: OK, and so if volatility persists, how then do you need to shift your strategy or your plan?

KEN MORAIF: So thank you for asking that because part two of the story is that as prices go up, eventually what happens is the consumer is priced out of being able to buy anything. And so if they start feeling the effects of that inflation, then they stop buying and profits now are going to get hurt. And when profits get hurt, the stock prices go back down again. So again, if you look at 1981, leading into 1982, the stock market went way up. It was a quite remarkable run. But then when inflation got too much for the consumer to bear, then we saw one of the worst bear markets we've had in the modern era.

So if the Fed is not successful in controlling inflation, then we could see another big, bad bear market. So diversification is extremely important, especially if you're over 50. And the people we work with are within five years of retirement, or they're already in retirement, so that 10-year period, I'll say. If you're in that period, diversification, not being overly risky is extremely important. But then also having a stop loss strategy is very important. And in our firm, we do. We call it Invest and Protect.

EMILY MCCORMICK: And you did mention this other variable, of course, being the Federal Reserve and monetary policy. And you mentioned that, of course, as earnings get inflated, stock prices do tend to go up as well. But I'm wondering on net in this environment, do you expect the Fed tightening because of inflation to have on net a dampening effect on stock prices because of the valuation hit?

KEN MORAIF: That is the million dollar question. Yeah, if the Fed can engineer a soft landing, as everybody hopes they will, and they can raise interest rates in a way that doesn't break anything, then I think profits will continue to increase, and the stock market should be OK. Now if the Fed goes too fast, it's kind of like you're in a car, the Fed's driving, and you're holding a cup of coffee in your hand. Now if they slam on the brakes, you're going to spill hot coffee all over yourself. And that's not going to be very much fun.

So the hope is, is that they can keep things on a smooth, even keel, keep the markets properly informed about what's going on so nobody panics. But, you know, the important thing is make sure that you are properly diversified, and you're only taking as much risk as is necessary to accomplish your financial goals. Being greedy right now and trying to go for outlandish returns I think would be detrimental, again, especially if you're over 50. And then also having a strategy to say, you know what? This is not where I want to play anymore, and you want to shift your assets out of equities and potentially into safer assets as well.

BRAD SMITH: Have you been able to quantify for your clients how much inflation has actually impacted the amount that they should have ready for retirement and where it will even impact their lifestyle post-retirement?

KEN MORAIF: That's an excellent question. One of the exercises that we go through with clients and prospective clients is we do what we call a retirement cash flow plan. In that plan, we look at how the sources of income that you're going to have and we also look at your expenses. And we apply an inflation assumption to that. And we've always used a 4% inflation assumption, even though we've had periods over the last-- it seems like a decade or two, where it's been 2% or less.

And so we always, in our projections, estimate a higher inflation rate than we think will actually happen. So yes, we do account for that. And especially if you're going to be retired and living on the money you've accumulated, inflation is one of your worst enemies. Bear markets and inflation and taxes-- those are the three enemies you need to mitigate or defeat if you can.

EMILY MCCORMICK: All right, Ken Moraif, Retirement Planners of America senior retirement planner, thank you again so much.