Investing During High Inflationary Times
How have your bank account and investments held up over the past couple of years? Are you weary of where we are headed? In order to navigate changing markets and drastic shifts in prices, you need to understand the basics of what’s going on to get your financials back on track.
Inflation is the reason that items cost more today than they did years ago. It can also cause multiple problems, especially for investors. In this quick guide, we’ll explain how inflation works and what to do about it.
With the right financial advisor in Greeneville, TN, you can combat inflation and grow your wealth even in such conditions.
With our expertise and guidance, you can do so by:
- Understanding how inflation affects your investments
- Learning how and what to invest in during high inflationary periods
- Exploring how Gen Xers are impacted by inflation
- Understanding the relationship between inflation and retirement planning
- Grasping how digital assets can hedge against inflation
- Getting professional guidance to protect and grow your wealth in trying times
It may help to know that you are not defined by your financial past. You can move towards financial independence starting today, with Sapiat Asset Management. Use this free eBook to get started as well as the information laid out here, as your starting point.
What is inflation?
You know that inflation means the price of things you buy is going up, right? Well, if you’re not sure how inflation affects your investments and retirement, you must read on.
Inflation is a measure of how much the cost of goods and services has increased over time. It’s usually measured by comparing the Consumer Price Index (CPI) from one year to another. For example, if prices rose on average by 2% between January 2019 and January 2020, that would be an increase in inflation. While there are some advantages to inflation, it can also cause serious problems for people and businesses.
Inflation is a general rise in the prices of goods and services over the long term.
Inflation can be measured by comparing the current price level with some basis or standard. Usually, this standard is set at 100 as an index value when there is no inflation or deflation. The value of this index then increases over time to reflect higher costs for goods and services.
If a price increases once, it’s not inflation. If it happens a lot, that’s inflation.
You may have heard that inflation is when the price of something increases. That’s true, but not enough. Inflation is the average change in prices over time. And if only one item’s price goes up, it’s not inflation—unless that single increase causes a significant impact on your budget or lifestyle.
So what does this mean for you? Let us give you an example: Say you buy a dozen eggs every week at $2 per dozen and then see the price go up to $3 per dozen—you now pay 50 cents more per egg than before, so while your purchase has increased by 50%, overall spending hasn’t necessarily changed much since you still buy exactly one dozen eggs each week. That said, if every item in your grocery cart were suddenly 50% more expensive (or less), then yes—that would be inflation!
Businesses use inflation to make sure they’re keeping pace, and the government uses it to make sure their policies are working and that things are changing for the better.
Inflation is a natural, inevitable part of the economy and society. It’s there whether we like it or not, and it has important roles in business and government. Businesses use inflation to make sure they’re keeping pace, and the government uses it to make sure their policies are working and that things are changing for the better.
Inflation can cause serious problems, but most economists see it as an inevitable part of a healthy economy.
When people have less money to buy the same amount of goods and services it can become scary and frustrating, right? As you know, inflation can be caused by a number of factors, including the government printing too much money or higher oil prices. It can also accelerate when there’s an economic boom, as more people are working and earning more money.
However, many economists see inflation as an inevitable part of a healthy economy. It helps encourage investment in new businesses and creates incentives for individuals to work harder at their jobs (since they’ll earn more).
How to invest during times of high inflation
Invest in real estate. The most basic way to protect your wealth against high inflation is by investing in real estate. The best type of investment property for this purpose is one that will appreciate over time and can be rented out. However, if you’re looking for a safer investment, consider buying a home that’s worth more than you paid for it so that when inflation goes down again, you’re left with an asset worth more than what you originally bought it for.
Bonds and cash, which earn less than the rate of inflation, are the worst type of investment to own during high inflationary periods. They present guaranteed loss with no upside potential. Both should be minimized within your portfolio. And because cash and bonds are tightly correlated to equities during such times, it helps to invest in assets with the potential to outpace inflation over the long-term. So discuss minimizing cash/bonds right now with a financial advisor at Sapiat.
Inflation and its impact on investing
A prolonged period of high inflation causes capital losses for holders of cash and monetary instruments, as well as loss of real value from fixed income securities such as bonds. This may lead to higher nominal interest rates being required to keep your demand for saving constant. This can induce real economic distortions such as unexpected changes in relative prices between products made at various points along the product lifecycle (e.g., due to cost-push inflation) or asset bubbles caused by fluctuations in expected future returns.
Inflation reduces the value of your assets. When the value of your home goes down, it’s hard to pay off the mortgage. When your stocks are worth less than when you bought them, it becomes more challenging to make good on your retirement savings accounts.
Inflation and retirement planning
You need to plan for how the impact of inflation will affect your retirement savings. For example, if you save $1,000 today and it grows to $2,000 in 10 years at 3% annual returns (which is a very low rate of return), then it would be worth $2,500 in 20 years.
However, if inflation averages 4% over those same two decades, then your purchasing power would be reduced by 25% when you withdraw it during retirement. That’s why people say that dollars can’t buy them what they used to buy!
Can digital assets hedge against inflation?
Digital assets are a great way to hedge against inflation. An asset is any item that has value, like money or precious metals. A hedge is a countermeasure against the risk that something will go wrong in the future.
Remember, inflation is when the price of goods and services increases, usually due to an increase in the supply of money. This can happen naturally over time as new products become more popular and demand goes up, but it can also be caused by governments printing more money than they need to pay their debts.
When you have digital assets like cryptocurrency or other blockchain-based tokens, your wealth is protected from inflation because their value is determined by supply and demand rather than an arbitrary amount of money printed by government officials. This means you don’t have to worry about inflation affecting your investment when you buy digital assets for storage purposes.
How inflation might impact Gen X
Yes, inflation has hit Gen Xers hard in a unique way. If you were born between 1967 and 1982, you’re likely to have received one of the best educations in the world and have benefited from rising wages throughout your working life. You may also be in a position where you are able to retire before reaching traditional retirement age.
If this is not possible for you, it’s important that you plan accordingly as early as possible to ensure that when it does come time for retirement, your income stream will be sufficient. It will help to read: Financial Planning Made Easy For Gen X.
Here’s what inflation could do for Gen Xers moving forward.
Inflation has historically been viewed as a bad thing because it erodes the purchasing power of investors’ savings over time. However, given how low interest rates are at present, investors may find that now is an ideal time to invest more aggressively in order to protect their wealth against what could potentially be high inflation rates over coming years.
Have you considered investing in digital assets to diversify your wealth?
Find out what the best digital assets are in order to make some changes to your portfolio.
How long does inflation last?
Before you can invest, you need to know how long inflation will last. To put it simply, inflation lasts as long as the economy is growing at a rate that outpaces the supply of goods and services. This is called demand-pull inflation.
When there are more dollars in circulation than there are products available to purchase, the value of each dollar increases because it can buy fewer products than before. Once the economy contracts and growth slows, prices will decrease until they reach a level where they match with supply again.
There are two types of inflation to become familiar with: short-term and long-term.
- Short-term inflation is usually caused by a sudden event like war, natural disaster, or an oil crisis.
- Long-term inflation is caused by a permanent change in economic conditions.
What does inflation mean for long-term investments?
A hidden tax on the value of money, inflation causes investment losses because it erodes your purchasing power. For example, if you have $1,000 in savings invested with an interest rate of 5% per year and inflation rises at a rate of 10%, you will be losing purchasing power even though your savings are growing. Over time, this can have serious consequences for your ability to maintain your standard of living in retirement or other important life events like buying a house or car or sending children to college.
The pros and cons of inflation
Inflation can be caused by a number of factors, but it’s often seen as a sign of an emerging economy. It is a double-edged sword: On the one hand, it can lead to economic growth and stability; on the other hand, it can cause problems for certain segments of the population.
Unfortunately, there is no uplifting energy behind high inflation. It’s impacts on the economy do more harm than good, in that:
- It can cause people to lose their jobs if companies are forced to cut spending due to rising costs associated with production and transportation.
- It can lead to higher interest rates on loans, which can make it harder for consumers or businesses to get credit.
- It makes it more difficult for employers to keep wages low.
- It reduces your purchasing power.
- People may have difficulty paying for necessities, especially those on a fixed income.
Finding a financial advisor in Greeneville, TN to help you combat high inflation
Investing during high-inflation times is not only possible, but it can even be rewarding. However, you need to know what you’re doing. Most importantly, you need a financial advisory team in Greeneville, TN who has the experience to help you make smart investments during these difficult times.
When looking for a financial advisor in Greeneville, TN, it’s important that they have a proven track record of making sound investment decisions and helping clients reach their goals. Making sure your needs are met will ensure that the best outcomes are produced for both parties involved in this relationship.
High inflation can impact your investments in many ways. It’s important to work with an experienced financial advisor to understand how the current rate of inflation can affect your portfolio. The right financial advisor will help you build and manage a portfolio that will reduce the risk of losing money while also growing your wealth over time, even in times of economic uncertainty.
A great place to start is by talking to an advisor at Sapiat Asset Management, today!
Sapiat Asset Management is a Fee-Only, Independent, Registered Investment Advisor (RIA), specializing in goal-oriented financial planning and investment management for Gen X Individuals & Families, their Businesses, & the Trusts that benefit them and their heirs.