How to Protect Yourself and Assets Against Inflation
By - Caden Rachwal
Inflation is the general rise in price level in the economy over a certain period of time. When the general price level rises, each unit of currency buys fewer goods and services. In the United States, inflation is calculated by using the consumer price index which is put together by the Bureau of Labor Statistics.
Inflation is really important, especially when you are on a fixed income. Even though the prices of goods and services will be increasing, you will still be making the same exact amount of money putting you at a disadvantage financially. To give an example, let’s say that you have a fixed income and you have a net income of $2,000, and you have $1,800 dollars in expenses per month, as inflation increases eventually your expenses will outweigh your net income. Right now with the savings account interest rates being so low, if the average inflation rate is 2 percent per year, you would actually end up losing money if you decided not to invest that money in something other than just an old fashioned savings account.
There are three simple ways to protect yourself against inflation. The best way to keep up with inflation and even be able to beat inflation is to invest in the stock market. Companies make money by selling their products, when the inflation rate goes up, companies are able to sell their products for more money which can end up helping the investors that have invested in that company. Another good thing to invest in would be stocks from companies that are necessary for people to purchase, such as household products, healthcare and pharmaceutical companies. Since consumers have to purchase these goods, the return on this investment is very good. The second way to beat inflation and keep up with inflation would be to invest in Inflation Protected Bonds. These bonds pay an interest rate and also are adjusted for inflation. This is a very secure way to keep up with the inflation because there is no way to end up losing money when investing in inflation protected bonds. The final way to keep up with inflation is to invest in hard assets. When inflation rises the price of hard assets will also rise. That is why many people will invest in gold and silver when there is a fear that the inflation rate will rise. However it is safer to invest in ETFs instead of gold because gold can end up being risky. While gold will be included in the ETF, there will be other commodities involved making it a safer option than putting all of your eggs into one basket.
Works Cited
Fernando, Jason. “Inflation Definition.” Investopedia, Investopedia, 18 Nov. 2020, www.investopedia.com/terms/i/inflation.asp.
“Inflation.” Wikipedia, Wikimedia Foundation, 23 Dec. 2020, en.wikipedia.org/wiki/Inflation.
Robert FarringtonRobert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™. “How to Protect Against Inflation Eating Away Your Returns.” The College Investor, 17 Oct. 2019, thecollegeinvestor.com/6425/protect-inflation-eating-returns/.
Inflation is a hugely relevant part of economics that will continue to affect us as consumers, so I really like this topic! However, I wonder if investing is easier said than done, especially for citizens of our age who have less financial resources available. For example, you mention Inflation Protected Bonds, which would definitely be helpful long-term, however isn’t the general price of those bonds higher due to their added benefit? Furthermore, acquiring hard assets can also be difficult and may be slightly unreasonable for the average consumer. Overall, I agree that we as consumers should try to protect ourselves as best we can against inflation, as it is a huge factor in purchases, salaries, etc. yet it is relatively difficult to do so.
ReplyDeleteI would never of thought to be worried about inflation but this is a very real problem. I was also unaware that the stock market is protected by inflation although it makes sense when you think about it. This also gets me thinking about whether its really fair not to raise people's income by 2% if inflation is rising? Companies probably benefit from inflation in that sense.
ReplyDeleteIt's always interesting to hear stories from my parents/grandparents about how they'd used to get so many goods from just a dollar or two, but it's also made me nervous about inflation. This is a very nice post, as protecting yourself from inflation is very good to protect yourself against-- I personally think investing in stocks is the best idea, as there is more opportunity for growth.
ReplyDeleteI had always wondered how to protect myself from inflation, so this blog post was very helpful! I already knew that investing in hard assets was a good way, but I never considered that investing in the stock market would help as well. You made a very good point with that. Additionally, Inflation Protected Bonds was something I never knew about, but I'm glad I found out about these. I think I will definitely grab one or two to put into my investment portfolio.
ReplyDeleteI agree with you! It's crazy to see how much money was used to be worth, and now I know how to protect myself!
DeleteI found this very helpful because I never know what to invest in, but I thought it was a great point to invest in pharmaceuticals and household items that people need because of the great return prices. I also didn't realize how badly inflation could affect us. Do a lot of people know how to beat inflation? I'm glad to know the best ways to beat it and stay ahead of inflation now.
ReplyDeleteHonestly this was something I never really thought about. You never really consider inflation, especially in our position. However, your instructions on the market and investment opportunities was very enlightening. I did have one question however. Since gold has a flat price, and we don't really utilize it except for backing our currency, in the long run wouldn't gold maintain the same price that you invested in? As I learned in econ, nearly all industries fall back to equilibrium in the long run.
ReplyDeleteI like this topic because we talk about inflation all the time but I never really thought it was something that I personally had to worry about or should spend time protecting myself from. I agree that there are ways to protect yourself and all three of the options you mentioned seem stable, but how would the average person get involved in doing this? Reading all of these options makes me want to do something, but I wonder what resources are available, especially for people like us who are relatively new to these ideas, to put these ideas into practice.
ReplyDeleteI didn't realize how much inflation could damage your assets because inflation doesn't allow people to just keep a lot of money in the savings account, since inflation could make you lose money. Although this isn't a good strategy in the first place, to combat inflation, there can be a decent amount of risk with stocks and ETFs that can make you lose more money than if you just kept your money in a savings account. I wonder how much the average American would lose if they just kept their money in a savings account.
ReplyDeleteIt had never been explained to me before exactly what inflation does and why a little bit is good, but the stock market makes a lot of sense and this helps so much in terms of things I was aware of, but didn't know the significance to. Inflation is nerve-wracking but this really helps with figuring out what to do about it and how to stay on top of it.
ReplyDeleteI really never thought about inflation until now. I never knew that inflation could make you a lot of money if you don't keep up. I thought you option of keeping up with inflation was really good. I wonder how many people don't know about inflation or do anything about it?
ReplyDeleteIt's interesting that most people don't even consider year by year inflation rates and their salary. I know some people get raises that are consistent with inflation, but that definitely isn't always the case. I think you made a really good point about how investing can help to keep inflation from affecting you, because I've never thought about it like that. Most people see investments as sort of an extra way to get money and not really necessary, but this makes me reconsider that. I think a lot of people don't really even know how to invest their money. Do you think there should be more awareness about the importance of investments, and how can that knowledge be spread?
ReplyDeleteIt's interesting to think that the best way to protect your money, (at least from inflation) is to invest it. It also shows another benefit of taking some chances, especially when your young, to invest because your money will be better protected from inflation then if it were to be in a savings account where it is making little to possibly no interest due to inflation. I definitely will be investing in Inflation Protected Bonds as well as stocks because that way my money will be diverse and bonds seem to be safer.
ReplyDeleteI knew inflation was something to be wary of but I was unaware of how much it was an issue right now. I didn't know that putting your money in a saving account would actually cause you to lose money in the long run as it stands currently.
ReplyDeleteI didn't quite understand the necessity of investing but if it's the only way to protect yourself from losing money to inflation, it's something everyone should do. But the stock market offers volatility, so why would you take it over inflation protected bonds?
ReplyDeleteThis was interesting and helpful, I feel that I hear about inflation all the time, and just only somewhat understand it, so this helped me understand it a bit more in detail. I never really paid attention to inflation but as I'm getting older and buying more necessities I have noticed it a lot more.I never connected investing with inflation till this class, so seeing that investing can keep inflation from affecting me. I never thought of investing as necessary because I had never thought my parents even did it, seeing as they had never talked about it with me. So I figured not everyone has to invest and its just extra ways to get money, but in the end this can help you when inflation occurs. I definitely think there should be more word about investing I feel lots of people keep it a secret and won't tell you what they are invested in because if the market is low and they are't earning as much money as they want they are embarrassed or something. I wonder if there is a way for it to be brought up more and talked about, otherwise if this wasn't a class I wouldn't have all this knowledge about it.
ReplyDeleteI feel like people talk about inflation all the time but I never really knew what it was and if it was something that spend time protecting myself from. I think that the ways that you mentioned to protect yourself were options that I hadn't even thought of. I definitely will be investing in Inflation Protected Bonds as well as stocks because that way my money will be diverse and bonds seem to be safer than non Inflation Protected Bonds.
ReplyDeleteI never really thought about how inflation could effect me in the future until now, and i'm glad I thought more about it sooner rather then later.
ReplyDeleteI personally see it as truly unfortunate that people HAVE to be invested in the stock market (or any other institution that can beat inflation) or they risk not having enough money to pay for their expenses.
ReplyDeleteOne question I have is how often does deinflation occur? Would that be a good thing or a bad thing?
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