Will inflation return in 2021?

Will inflation return in 2021?

Perhaps no financial subject causes the worry that the dreaded specter of inflation does. There are valid historical reasons for this: one can simply point to crises in South America, the 1970s in the United States, or even World War II for examples of the ill effects of inflation. Perhaps because of its power to haunt us, inflation frequently becomes a topic of concern and financial journalism whenever an economic crisis rears its head: in fact, The Economist cover on Dec. 10 of 2020 was already asking “Will Inflation Return?” And so we imagine, given the worries from financial journalism about increased aid to those suffering from the economic effects of COVID-19, along with the general (though rather incorrect) assumptions about Democrats being the party of increasing deficits, 2021 will feature a great deal of talk about inflation.

In fact, The Economist cover became a semi-internet event as the wags of Twitter were quick to point out that The Economist has been writing stories about inflation repeatedly over the past 30 years and inflation has not been a problem in that time. However, such pithy dismissals ignore the real concerns of inflation over the longer term. Indeed, while we don’t foresee inflation being a problem in the near term, there is concern as time goes on the deficit spending of the present could cause future inflation. Consequently, this piece will explain inflation, what factors are shaping and will shape the conversation around inflation in 2021, and then what will shape inflation in the longer term.

What is Inflation?

Inflation is simply the fact that one dollar will generally purchase less in the future than it does right now. This is reflected in the fact that a candy bar costs about $1.50, whereas when I was a kid a Hershey’s candy bar could be bought for about 50 cents. In inflation terms, we could reverse this to better understand the phenomenon, however: when I was a kid, you could buy two candy bars for a dollar, and now you can only buy 2/3 of a candy bar. On the surface, this seems terrible—especially, if like me, you enjoy a chocolate bar and a glass of milk before bed—this habit of mine is costing me more than two times as much! (Of course, my allowance is greater than it was when candy bars were 50 cents, and most of us on salary see our salary increase over time in line with inflation).

What many people don’t realize is that inflation is built into the system—currently, the United States targets about 2% inflation annually (editor’s note: how is inflation measured? That’s a trickier topic and beyond the purview of this article, but it goes beyond candy bars). You may be asking yourself: if inflation is so bad, why do we have any inflation at all? Because the alternatives (deflation) are much worse. 

A dollar being worth less today than it was yesterday means I’m going to take my money that I’m not using and either spend it or invest it (whereas if my money were worth more tomorrow than it is today—my best risk-free investment would be keeping it under my mattress, which is great for me—spending less on chocolate, eating better—but bad for everyone. For example, our friends and the employees at Madison Chocolate Company who manufacture chocolate would not be helped if I eliminate it from my diet). 

And this raises the question of what causes inflation—like everything else in the economic world, the answer is supply and demand. Supply is pretty simply the amount of money printed by the government. On the other hand, monetary demand is one of the thornier problems of economic theory to calculate, because people demand money in a couple of ways—to spend (what is called transactions demand for money), to save, and to invest (portfolio demand for money). If there is more money in circulation (an increase in supply from the government spending more money or printing more money) and the demand for the money stays about the same (people are spending, saving, and investing in normal terms), the money will be less valuable overall and over time. But what we saw in 2020 was not normal, as people were forced not to spend (fear of going to restaurants, unable to travel, etc.) and also chose to save more (worried about losing their job, income, etc.). This meant more savings and less spending. Like my chocolate bar money, this is good behavior personally and bad behavior in big picture terms.

What about 2021 is Causing People to Worry About Inflation?

Two things happened in 2020 that have caused people to worry about inflation. The first is that as a response to the COVID-19 pandemic the demand for savings (M2) increased—people saved more, put less money to “work,” and that meant less money being spent (what economists partially measure as the velocity of money). As a result, the United States government did a variety of things to keep money moving through the economy rather than sitting in savings accounts being saved for the future (remember: less chocolate is good for me, bad for the economy). They increased government spending (the government helped buy things to make up for the fact other people weren’t) and they lowered interest rates. Lowering interest rates means more money will be spent because the incentive to save money is lowered (why am I keeping this money in the bank earning nothing?) and the risk for borrowers is lowered (if I can borrow money at about the long-term inflation rate, it makes sense for me, because my investment doesn’t need to be as successful for this to be a good idea). Likewise, by pumping more money into the economy (either by buying stuff directly or through transfer payments), savers will naturally meet their savings goals and have a surplus to spend (this is the theory anyhow). 

Via transfer payments and deficit spending then, the government increased the supply of money. As we’ve seen that will lead to inflation. However, not all of the money made it into the economy—a great deal was saved. That means while there is a lot more money being printed, we aren’t necessarily more money chasing goods and services; therefore, inflation has—overall—been contained.

Short-Term versus Long-Term Inflation

We could see inflation in 2021—say there is a magical virus cure and suddenly, we’re back drinking and eating out and flying around the world all of the time (I’m thinking of 2019 when the Sunday after the negative 40-degree cold snap led to bars and restaurants closing voluntarily, and suddenly, people were all about). We spend all of our savings immediately and all of that extra money printed in the last few years comes flooding back into circulation. However, that seems unlikely—even though we may want to vacation all of the time, some of us have limits on vacation days and so we can’t go around booking trips for months straight. Likewise, with regards to bars and restaurants—hangovers, diets, gout, etc. mean we can’t go around drinking and eating as much as we want—though we’ll likely increase our consumption at bars and restaurants. There is also a natural inclination not to spend savings once developed (humans being creatures of habit), and so we’ll see these savings reduced gradually over time. Finally, many Americans used this money to pay off spending in the past (credit card debts, for example).

As the glut of extra printed money comes back into the economy, the question of longer-term inflation becomes a worry: Are we printing too much money? Economists analyze this in terms of the relationship between Gross Domestic Product (demand) and the amount of money in supply: essentially, if there is more money in circulation than growth of productivity or more money chasing the same quantity of goods and services, you end up with inflation.

Ultimately then, the goal of policymakers is to ensure that the money moves from being saved to being spent at a controlled rate. This means the following will shape predictions of long-term inflation: one, will the US be able to effectively decrease money in circulation by increasing interest rates and encouraging people to put money in the bank (how much am I reducing my savings by)? Two, will the money pumped into the economy have the effect of stimulating the economy and lead to economic growth increasing demand (meaning that the growth of GDP will more or less keep pace with the increase of the monetary supply)? Three, will the United States reduce spending and lower the supply of money from that perspective as well to ensure that there is less money in circulation? 

These are three long-term questions that policymakers, government officials, and the Federal Reserve will need to manage in order to make sure I can keep buying the right amount of candy bars for my health and the economy’s health. 

Keith Poniewaz, PhD


This piece was part of Walkner Condon’s 2020 Review & 2021 Investment Outlook Guide, a comprehensive interactive PDF covering a wide range of subjects and trends, including the S&P 500, electric cars, and more. To read the full guide, please click the button below.

Review and Outlook: Analyzing ESG and Sustainable Investing into 2021

Review and Outlook: Analyzing ESG and Sustainable Investing into 2021

Many clients ask how they can invest their money in a way that aligns with their values. As one might imagine, there isn’t a universal way to accomplish this because different people have different values. However, there are some basic criteria in the investment world to help investors better understand how their investments score from a sustainability perspective. The three main pillars that many publicly traded securities are scored are Environmental, Social, and corporate Governance (ESG). US SIF defines sustainable investing as “An investment discipline that considers environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact.” (For a more in-depth blog that covers the basics of ESG, feel free to read this piece).

One of the first things that people interested in ESG investing ask is “will I be sacrificing my returns?”. There are numerous studies out there that show that you do not have to sacrifice returns by investing in ESG. As a matter of fact, some studies show that ESG can add some downside protection in a portfolio. Keep in mind that when comparing an ESG portfolio to a “traditional” portfolio you should ensure that asset allocation, among other factors, is consistent for an apples-to-apples comparison. 

Let’s take a look at how ESG funds performed in 2020, specifically US large-cap funds. This chart compares the total return of the Nuveen ESG Large-Cap ETF (ticker: NULC) vs. the Vanguard Large-Cap ETF (ticker: VV) in 2020.

This shows that the fund that incorporated ESG (NULC) returned 22.47% in calendar year 2020 while a peer that did not include ESG screening (VV) returned 20.98% in 2020. 

Now let’s look at two ETFs from the same fund manager: BlackRock. One of their flagship products, iShares ETFs, have ESG and non-ESG versions. The following chart compares two BlackRock large-cap blend funds: iShares ESG Aware MSCI USA ETF (ticker: ESGU) vs. iShares Russell 1000 ETF (IWB). 

This chart is another example of an ESG fund outperforming a peer (by 1.77% total return) in 2020. It is interesting to note that many of these funds end up owning a lot of the same companies under the hood. As a matter of fact, eight of the top 10 holdings in ESGU and IWB are the same. These are companies that we are probably familiar with: Apple, Microsoft, Amazon, Google, Facebook, Tesla, and Johnson & Johnson. 

The previous two charts show examples of where US large-cap ESG funds showed superior performance in a single year, 2020. Let’s take a look back a few years. The chart below goes back to 2017 and uses a couple of the iShares ETFs that were discussed in the last chart and compares them to a second ESG fund, FlexShares STOXX US ESG Impact ETF (ticker: ESG).

Over this time period, ESG again outperformed. In this case, FlexShares ESG ETF provided a 96.68% total return, significantly higher than either of the iShares ETFs.

The primary takeaway from the last three charts is that in recent history, incorporating ESG has appeared to be favorable to investors. One reason is that the price of oil is down, and one of the first screens applied to ESG funds is to “get rid of big-oil, carbon-intensive companies.” But oil isn’t the only reason; that only addresses a single screen within the Environmental category. Don’t forget about the ‘S’ and ‘G’ of ESG. 2020 – the year of COVID, social unrest, and political division – is an example of when ESG factors have shown to outperform during a period of uncertainty. Of course, as investors, we know that ESG may not always outperform. But from a macro perspective, we are seeing a trend in the number of assets that are going into ESG funds. 


The prior section took a look at ESG funds and their performance in very recent memory. This section will zoom out a bit and look at ESG trends over a longer period of time as well as the growth in the amount of ESG offerings and the inflows going into ESG funds. 

According to US SIF’s 2020 Report on US Sustainable and Impact Investing Trends, of the $51.4 trillion professionally managed assets in the US, $17.1 trillion (33.3%) are considered sustainable investment assets. Compare this to US SIF’s (then known as the Social Investment Forum) 2010 report where an estimated $3.07 trillion of the $25.2 trillion (12.2%) of professionally managed assets included sustainability criteria. Graphically, it is easy to see the growth of ESG over the last couple of decades.

ESG IN 2021

Investors have been taking note of ESG trends for many years now, and the “big dog” asset managers are not taking ESG and sustainability lightly. In the executive summary of the 2021 Long-Term Capital Market Assumptions report, JP Morgan states, “Whether climate change is tackled through less intensive usage of “brown” energy or greater investment in green energy, we see a positive economic outcome in aggregate from more sustainable investment…Clearly, there will be winners and losers, particularly as demand for fossil fuels levels off and eventually goes into reverse. But as with other long-term challenges, we expect that the adoption of sustainable technology will both lead to new innovation and increase efficiency.” BlackRock’s 2021 Global Outlook is much more to the point, stating “We prefer sustainable assets amid a growing societal preference for sustainability.”

ESG has become quite controversial within the world of employer-sponsored retirement plans. Many employees of companies that offer defined-contribution plans such as 401(k)s are asking for more sustainable investment options within the investment lineup of their plan. That’s especially the case as Millennials are accumulating more wealth and Gen Z is continuing to enter the workforce and participate in their employer’s 401(k) plan. However, the stance of the Department of Labor (DOL), is that they do not want ESG funds within a 401(k) investment lineup. They don’t explicitly ban an ESG-labeled fund from a 401(k), but a couple of press release comments make it clear where they stand:

“Plan fiduciaries should never sacrifice participants’ interests in their benefits to promote other non-financial goals.” – Acting Assistant Secretary of Labor for the Employee Benefits Security Administration Jeanne Klinefelter Wilson

“This rule will ensure that retirement plan fiduciaries are focused on the financial interests of plan participants and beneficiaries, rather than on other, non-pecuniary goals or policy objectives.” – U.S. Secretary of Labor Eugene Scalia

I doubt that we will see any major overhaul to investment lineups in 2021 by 401(k) plan fiduciaries due to the position that the DOL has taken. That said, if more and more employees continue to push for ESG options within their retirement plans, this could change over time.

If, over time, ESG proves to add shareholder and stakeholder value, there very well may be a convergence between ESG and “traditional” investing. In other words, analyzing ESG factors may simply be part of every money manager’s investment process. 

Mitch DeWitt, CFP®, MBA


This piece was part of Walkner Condon’s 2020 Review & 2021 Investment Outlook Guide, a comprehensive interactive PDF covering a wide range of subjects and trends, including the S&P 500, electric cars, and more. To read the full guide, please click the button below.

Don’t Buy Things You Can’t Afford

Don’t Buy Things You Can’t Afford

I grew up watching Saturday Night Live with my dad, and there are a couple of skits that I will remember forever. Who could forget Chris Farley dancing with Patrick Swayze as they auditioned to be Chippendale dancers? Or hearing Matt Foley (Chris Farley again) telling a couple of kids that they would end up living in a “Van down by the RIVER!!”? One of my all-time favorites though was with Steve Martin, as he and his wife were trying to figure out how they could get out of their mounting debt. As they hem and haw about their financial situation, Chris Parnell comes behind them and recommends they read the self-help book that can help them finally get on top of their finances. It’s called “Don’t Buy Stuff You Cannot Afford!” They look at him like he’s crazy as they ask questions like “If I want something but I don’t have the money, shouldn’t I buy it anyway?” and “But then shouldn’t you buy it, and then get the money?” The response was, “No. It’s in the book. It is only one page long.” Don’t buy stuff you cannot afford! 

This hilarious skit is something that many clients, and people that I come across, face every day. They have to make a decision on what they should do when they want something but may not have the money to buy it. It’s a great rule to follow when you are weighing the pros and cons of any purchase. If you can’t afford it, you probably shouldn’t buy it. Many young people put themselves in the hole financially when they get their first taste of credit in the form of a credit card. It seems so easy when you can just buy new clothes, a set of golf clubs, or a nice dinner without paying cash or watching the money leave your checking or savings account. Then, the bill comes, and you don’t have the cash inflows to pay it off. Interest charged on these purchases often begins to compound and make the debt unbearable. It causes stress, depression, anxiety, and regret. 

That presents the question – should you refrain completely from making expensive purchases or buying things that could put you in a tight financial position? Absolutely not! Money is made and meant to be spent. But it is a good financial rule to use a budget, save by paying yourself first, and plan for a purchase that satisfies your want or need while remaining affordable. You can also capitalize on the rewards points that are offered by credit card companies by using the card to pay for the purchase. At the end of the month, you can pay off the expense because you had the money available. These types of expenditures are often the most enjoyed because there was a process to save for them, and they are “paid for.” Many people have to use credit cards when there is an emergency, or they have a large purchase that is immediate and their compensation or income is not regular. That is why our credit is so important to managing the fluctuating things that go on in our financial lives. Using credit but not carrying over debt can be a very good thing!

If you want to have this ability to balance your current wants and needs while building for the future and retirement, we would be happy to meet with you. Although we have more to offer in terms of financial planning and putting together a personal financial strategy for you, it can truly be summed up in one of the most influential books never written – “Don’t Buy Stuff You Cannot Afford!”

Jonathon Jordan, CFP®

Webinar: ESG and Sustainable Investing – Aligning Your Values with Your Investments

Webinar: ESG and Sustainable Investing – Aligning Your Values with Your Investments

With the twists and turns of 2020 – horrendous wildfires, the onset on COVID-19, and social unrest – social consciousness has continued to extend into nearly all facets of our everyday lives. And whether you’ve heard the term ‘ESG’ or not, chances are you’ve thought about how your social consciousness and personal values intersect with your investment strategies.

Walkner Condon Financial Advisors’ Mitch DeWitt, MBA, CFP®, is joined by Senior ESG Fixed Income Research Analyst Lisa Fillingame Abraham of Brown Advisory to dive into this topic of Sustainable Investing. Along with an introduction to sustainable investing and what it means to be an ‘ESG’ or ‘Sustainable’ fund, the webinar explores trends from 2020, including the pandemic response and climate change, and outlook to 2021 and beyond.

Mitch DeWitt, CFP®, MBA

If you have any questions or would like to discuss anything from the Sustainable Investing webinar more in-depth, please feel free to reach out to me by tapping the button below. You can also schedule an appointment by clicking here.

Seven Things to Know About ESG and its Role in “Sustainable” Investing

Seven Things to Know About ESG and its Role in “Sustainable” Investing

What is ESG? 

ESG stands for Environmental, Social, and corporate Governance. They represent three categories that are commonly analyzed when looking to invest in a company or a fund. One common phrase that might sound familiar is “aligning your investments with your values.” Many financial advisors and institutions use that phrase to lead into a discussion around an investment portfolio that has incorporated ESG factors. More recently, ESG has been viewed as a material risk factor. Ultimately, this means that regardless of whether the portfolio aligns with your values or not, incorporating ESG may mitigate certain risks within your portfolio. ESG isn’t just for “tree huggers”; it is becoming more and more mainstream as people are looking to utilize it to make a more robust portfolio. 

What is included in ESG?

ESG includes dozens of criteria that fall under the three main categories. Common examples within the Environmental category are climate change vulnerability, emissions & energy use, and raw materials & other resource use. Common examples within the Social category are human capital management & labor practices, employee health & safety, and diversity & inclusion. Common examples within the corporate Governance category are board compensation & structure, executive compensation, and business ethics.

Is there a rating or scoring system to determine how “sustainable” a particular fund is?

Yes. Third party rating providers include MSCI, Sustainalytics (acquired by Morningstar), Just Capital, Arabesque S-Ray, ISS, S&P Global, and more. Most of these services require paid subscriptions if you really want to dive into the weeds and compare several companies side-by-side and their respective product involvements related to animal testing, for example. One of the easiest ways to get a quick 30,000-foot view is to reference the Morningstar Sustainability Rating of a company or a fund. Historically, Morningstar is known for their 5-star rating system, which is focused on financial performance. Their Sustainability Rating system is based on a 5-globe scale instead. A 5-star fund indicates that it has outperformed its peers from a financial return perspective; a 5-globe fund indicates it has outperformed its peers from sustainability perspective when it is scored using ESG criteria. Usually a company or fund will receive a score for E, a score for S, and a score for G, and then a blended overall sustainability score. You also may be able to get some ESG information from your financial advisor.  

How can I research or explore socially responsible funds? 

There are many ways to research Environmental, Social, and corporate Governance funds. You can do it by yourself or have a financial advisor knowledgeable about this space help you out. A common way to start is to set a screen to only include ESG funds. For example, let’s say you are looking to invest in a US Large Cap fund. Many brokerages have screeners that allow you to filter out the funds that do not incorporate ESG. At this point, you might have a list of funds that simply have “ESG” in the name of the fund. Just because a fund has ESG in the title doesn’t mean that the fund has the same criteria that you are looking for. Not all ESG funds are the same! A deeper dive can be more tricky. In the case of a fund, you may want to see how the fund scores in the E, S, and G categories as well as an overall sustainability score (see section above). You can also look at the latest holdings report to see what companies the fund owns. This will help you gauge if the fund owns the companies that you want (or don’t want) to invest in. You can also read through the investment objective and prospectus of a fund to get additional information. A statement might be as simple as “The Fund employs a passive management (or “indexing”) approach, investing primarily in large-capitalization U.S. equity securities that exhibit overall growth style characteristics and that satisfy certain environmental, social and governance (“ESG”) criteria.” The previous statement described was directly from one of Nuveen’s ESG Exchange Traded Funds (ticker: NULG).

What has contributed to the rise in popularity of ESG?

ESG has become more popular due to changing investor preferences, generational differences, and published studies which show that returns do not need to be sacrificed by incorporating it into a portfolio (some studies even show outperformance in bull markets and increased downside protection in bear markets). Investors are demanding more from their investments, not just in financial return, but in their societal impact. Generally younger investors (e.g. Millennials, Gen Z) are applying a more scrutinous lens to their investment portfolios compared to older investors (e.g. Baby Boomers). There are also gender differences: women generally have more interest in ESG than men. Fund companies and money managers are listening. They are incorporating ESG criteria into their investment process not only because investors are asking for it, but also because they believe incorporating ESG into a portfolio can help manage risks.

What is the difference between Sustainability and ESG?

ESG generally falls under the umbrella of sustainable investing. US SIF describes it well: “A key strategy of sustainable and responsible investing is incorporating ESG criteria into investment analysis and portfolio construction across a range of asset classes.” One way to think of it is companies that have high ESG scores are more sustainable, resilient, and therefore (theoretically) will be able to generate superior earnings over time. Of course, superior earnings over time would be reflected by positive portfolio performance.

Can a “big oil” company be included in one of these funds?

Yes. Remember when I mentioned that not all ESG funds are the same? Some funds have a “higher bar” than others. Or some simply have a different approach to inclusion within their fund. For example, one fund, Nuveen’s ESG Large Cap Value ETF (ticker: NULV), includes oilfield services company Baker Hughes and the energy company Valero. It does not include companies like Exxon and Chevron, which are part of the S&P 500 Value Index. Another fund, BlackRock’s iShares ESG Aware MSCI USA ETF (ticker: ESGU), not only includes Baker Hughes and Valero, but in addition it also owns Exxon, Chevron, ConocoPhillips, and Marathon! Why is this the case? For the most part these funds start with the same “basket of goods.” In other words, U.S. publicly traded companies. But their processes are different. Nuveen excludes a wave of companies that do not live up to a set of predetermined ESG criteria, then selects the “best-in-class” ESG leaders in their respective sector, and then applies a carbon emissions/intensity screen. When it is all said and done, NULV has less “big oil” companies in their portfolio. BlackRock applies business involvement screens to their ESG Aware funds. The five screens they outline are civilian firearms, controversial weapons, oil sands, thermal coal, and tobacco (see definitions here). After applying their screens they still include the aforementioned companies in the fund. Again, not all ESG funds are the same.

Mitch DeWitt, CFP®, MBA

Investment Guide: Reviewing 2020 and Financial Outlook for 2021

Investment Guide: Reviewing 2020 and Financial Outlook for 2021


With all of our advisors contributing content, this is Walkner Condon Financial Advisors’ first-ever comprehensive investment guide. The guide covers a wide-range of topics – from electric cars to the S&P 500 to sustainable investing, as well as some trends we see in the markets in 2021. The COVID-19 pandemic has affected nearly all aspects of our lives, and that thematic undercurrent runs throughout the course of this guide, both in the review of 2020 and the year that lies ahead.