How To Protect Your Finances Against Inflation
Benjamin Franklin once said, “In this world nothing can be said to be certain, except death and taxes.” He was pretty close, but he forgot one other fact of life: inflation. No matter what country a person lives in or what type of currency it uses, inflation is something that’s impossible to ignore.
What Is Inflation?
In simple terms, inflation means that your dollar buys less today than it used to. People of almost any age have seen this in action, with older adults seeing more drastic changes:
• Milk: In the 1950s, a gallon of milk was $0.83. Today, it’s about $3.00.
• Housing: The average price of a home in the U.S. in the 1980s was about $55,000. In 2020,
it’s over $275,000.
• Gasoline: Gas prices aren’t only dependent on inflation, but a gallon has gone from $1.30 to
over double in just 20 years.
I don’t want to use the whole “back in my day” line, but you have to admit those numbers are
pretty shocking. What this means is that the money you're saving for retirement may not buy as much as you think by the time you’re ready to retire — unless you take some smart steps right now, that is.
How Can You Protect Your Savings Against Inflation?
The most important thing to understand is that money is never safe from inflation. Things such as savings accounts, bonds and CDs are great for protecting your finances right now, but they’re not so hot for long-term investment. In 20 years, you’ll still have roughly the same amount of money you put in your savings account, but the price of everything else may have doubled or tripled by then!
To safeguard yourself, you need to place some of your money into investments. The value of
things tends to increase over time, especially when we’re talking about items and companies that are always relevant. For example, real estate increases in value across the country.
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What Are the Safest Investments for Inflation?
This doesn’t mean that you should put all of your money into investment funds and stocks.
Financial experts recommend keeping at least 20% in investments. Here are some of the best
• TIPS: Treasury inflation-protected securities are a type of bond from the U.S. Treasury
specifically designed to take inflation into account. They pay out on a fixed rate that is
adjusted to the inflation rate, so your money is also adjusted at the same time. You can
choose from 30-year, 10-year and five-year TIPS bonds.
• High-quality stocks: Industries such as healthcare and food manufacturing keep going
strong after decades or more. Nestle has been around for over 150 years and Coca-Cola
has over 125 years under its belt. In spite of inflation, these companies keep generating
profits to match, so the value of investments continues increasing, too.
• Diversified investments: Commodities tend to increase upward to match inflation, but the
individual prices of things such as oil, gas, metal and livestock can fluctuate quite a bit. To
ensure a stable return on investment, pick a diversified portfolio with dozens of different
Any time stocks are involved, I always recommend speaking with a trustworthy financial advisor for assistance. This type of long-term investment isn’t going to make you rich, but it can keep your finances protected from inflation. That way you can enjoy your retirement comfortably and spend time with the people you love. Those are the things that really matter.