5 Things You Need To Know About Inflation

beating-inflation

Inflation is the silent killer of money. That’s the bottom line. Unfortunately, most people are unaware of how much of a threat inflation poses for their personal finances. They quietly save and invest with no idea about inflation’s effect on their nest egg. As a result, many people find themselves facing retirement age with a nest egg that simply isn’t up to the job.

Don’t find out the hard way about inflation, brush up on this powerful and important economic reality and arm yourself with the right information. Inflation is the constant devaluation of your money’s spending power. Thanks to government presses that continue to print up new money, the money you have now is not worth as much as before. Each passing month, the value of your money decreases. You need to do something with your money to ensure that it holds up its value against inflation.

Saving is not enough

Simply putting your money in the bank is not enough to stop inflation in its tracks. In fact, saving doesn’t address inflation because most savings accounts don’t pay a high enough interest rate to make a dent against inflation. If this isn’t bad enough, you still have to pay tax on the measly interest your money earns. As a result, you lose out to inflation even more. Even if you invest your money in higher-paying money market or time deposit accounts, chances are they still don’t pay enough interest to cover inflation.

Safe investments may not be enough

If you got turned off by the nonexistent protection against inflation you get from savings accounts and other time-based deposit accounts at your bank, the story isn’t any rosier when it comes to ‘safe’ investments like certain municipal bonds. Keep in mind that the old rule of ‘the safer the investment, the lower the return,’ is true no matter what. If there is no risk or volatility in your choice of investments, the chances of you beating inflation is low to nonexistent.

Take more risks to beat inflation

The key to beating inflation with the right investments is not a question of picking the right return with a minimum of risk but actually choosing investments with the right risk profiles. You go for the risk before the return. This is one key lesson many savers don’t get. The riskier the investment, the higher the return.

The power of real estate

Population continues to go up while the supply of land continues to remain fixed. This is the reason why real estate has always been one of the best investments you can make to protect your assets against inflation. Notwithstanding the recent real estate crash of 2008 to 2012, real estate is a solid investment that pays off over the long haul.

The power of stock investments

Another investment form that constantly manages to beat inflation, despite the occasional hiccup or two, is the stock market. Stocks track the rising fortunes of companies. Make the right picks and see your net worth rise as companies dominate their industries and branch out to other industries. On the average, stocks’ historical appreciation range upwards of 10%. No savings account is going to pay you that rate of return-even in your wildest dreams.

Edwin C

Edwin is a marketer, social media influencer and head writer here at Make Money Saving. He manages a large network of high quality finance blogs and social media accounts. You can connect with him via email here.

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