Ep 26: Pros and Cons of Inflation and Investing

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Inflation has been in the news a lot lately, but what is inflation exactly and how might it affect your financial future? We’ll explain the ins and outs and pros and cons of this much talked about topic.

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Show Notes

Let’s talk about inflation. You’ve probably seen the headlines in the news, and you might be worried about your financial future. Inflation is the impact of rising prices on the economy. It’s measured in a few different ways, but the most common measurement is the consumer price index.

In general, that means prices are going up. The same $1 bill that you had in July 2020 now would buy fewer goods in July 2021. This becomes a concern of some people who say it’s a loss of purchasing power by the public. That could lead to the deceleration of economic growth.

Let’s walk through some examples. If the price of oil goes up, it could cost more to ship goods on boats, planes, and trains. It could cost us more to drive our vehicles. If you go to the grocery store, most likely the items would cost more now than a year ago.

The negative side of inflation is that the same dollar you had a year ago doesn’t go as far now. If you are holding onto a lot of cash or bonds, it diminishes your purchasing power. Another downside of inflation is that it can make it harder for some people to save for retirement.

Now, there are some positive views on what inflation brings as well. Tangible assets like property can see a rise in their value. Raising prices in stores can lead to a rise in wages for employees.

So what should you do with your money? Could this mean a stock market crash? You can try to hedge inflation, which means you need growth in your savings. Interest rates are very low, so having too much cash and bonds means low returns. For our clients, we’re always looking at these important topics and examining your income plan and supplemental cash needs to make sure you feel secure.

Listen to the full podcast or use the timestamps below to jump to a specific section.

[2:12] – What is inflation? 

[5:20 ]– Examples of inflation

[6:53] – Negative sides

[8:37 ]– Positive sides

[9:41] – Hedge inflation

[10:29] – Inflation and market returns

[13:26] – Your income plan

Thanks for checking out this episode. We’ll talk to you again soon.

“Another downside of inflation is that it can make it harder for some people to save for retirement.”

-Scott Sierens

Cited Sources: 

Inflation Definition (investopedia.com)

Inflation vs. Stock Market Returns (awealthofcommonsense.com)