Inflation is on its way back to America! Since this topic hasn’t come up since 2007, let’s brush up on that magical, secret sauce that makes everything more expensive: INFLATION.

Year by year, the experts at our Federal Reserve manage our economy by wielding their tools: money supply and interest rates. Their goal is to safely manage inflation, which should cause the price of goods and services to increase 2% each year.

That means, each year, the same dollar, without earning interest, is less valuable. A pack of gum this year costs $1. Next year, the same pack will cost $1.02. Without earning any interest, an account with $1,000 would be worth $903.20 after five years, and $817.07 after ten years.

 

Makes you wonder how much interest your bank is paying, right?

 

The cost of borrowing money increases, too! You may have already seen this in your credit card statements, adjustable rate mortgages, etc. If you’re shopping for a house or building one like I am, the rising mortgage rates are directly affecting your wallet!

 

To keep inflation from steadily gnawing away at your money, it's essential to invest in assets that can reasonably be expected to yield a higher rate than inflation.

 

Inflation is a primary reason people invest in the first place. We need to ensure that the dollar we have today will buy the same it does in the future, or better! However, investing brings in risk. The BIG challenge is to figure out how to do this safely and consistently, without risking too much of what you’ve already saved. Bond issuers can default, and companies that issue stock can go under.

 

In my research into these most recent inflation alarms, I’ve found way more ambiguity about the future of our markets and the value of money, than I would like to see. Will cryptocurrencies be a factor?

 

The long and the short of it is, we still haven’t found the “Magic Wand of Golden Predictions.” Every situation is unique and requires customization. Different types of investments respond differently to inflation, and even those changes can change with time. Sound confusing?

If you’d like a deeper conversation about how inflation can affect you, your investments, retirement, and debts, please reach out to our office. Our team will be delighted to schedule a private consultation with you.