by Sean Sandefur, Victory Wealth Services
When you were a kid and someone would hand you a $10 bill, they’d say: “Don’t spend it all in one place!” A fun little bit of advice much harder to accomplish today. These days you’re lucky if $10 buys you a decent cheeseburger.
Inflation casts a shadow over our finances as it continues to erode the value of the dollar. These days that shadow feels especially imposing as inflation rates have been sitting around 6% to 8%.
What causes inflation?
Inflation is driven by factors such as demand-pull, in which consumer demand outstrips goods supply, escalating prices. Such shortfalls can stem from raw materials scarcity, worker shortages or production bottlenecks.
Government strategies like high spending, printing money and low-interest rates can also spur inflation. The current inflation spike is chiefly tied to the COVID-19 pandemic recovery.
Can I utilize inflation
to my advantage?
Inflation usually gets a bad reputation as rising costs typically outstrip income growth. However, consistent, low inflation can signal a thriving economy and present investment opportunities. Long-term investments in assets such as real estate may offer good returns when their value escalates.
Remember, each investment carries risk, so it’s important to consult a financial adviser.
Deflation: A good alternative?
While deflation might seem appealing, it often indicates a stagnant economy or recession, as seen in 2009 after the financial crisis.
How can I prepare
for inflation?
Inflation becomes an even bigger concern for those approaching retirement, as static funds lose value over time. One approach to mitigate this impact is through insurance products like Fixed Index Annuities (FIAs). FIAs offer tax deferral benefits and the possibility of interest from an external index, sans direct stock market participation.
As plans vary, it’s crucial to seek a financial advisor’s counsel.
