How does inflation impact my savings and investments?

Hey there! Great question. Inflation can definitely have an impact on your savings and investments.

Here’s how it works: Inflation is the general increase in prices of goods and services over time. When inflation occurs, the purchasing power of your money decreases. This means that the money you have saved or invested will be able to buy less in the future than it can today.

For your savings, if the interest rate on your savings account is lower than the inflation rate, the real value of your savings will decrease. Let’s say you have $1000 in a savings account earning 1% interest, but inflation is at 2%. In a year, your money grows to $1010, but due to inflation, that $1010 can only buy what $990 could the previous year. So, you’ve technically lost purchasing power.

When it comes to investments, some assets may outpace inflation and offer a hedge against it. For example, stocks historically have provided returns that outpace inflation over the long term. Real estate can also be a good hedge against inflation as property values tend to increase over time.

To combat the negative effects of inflation on your savings and investments, consider diversifying your portfolio with assets that have a history of keeping up with or outpacing inflation. Additionally, periodically reassess and adjust your investments to ensure they align with your financial goals and the current economic climate.

I hope this helps clarify how inflation impacts your savings and investments. Feel free to share this