“Life is expensive” and “Everything costs more than it did last year” are phrases you’re probably hearing more often. Inflation has hit hard in this post-COVID era. Housing prices get most of the attention, but everyday costs keep climbing, putting steady pressure on the American wallet.
The public has felt the pain of groceries rising faster than they’re used to. Many people are paying higher totals for smaller grocery lists. Whether we have had to adjust our spending habits or not, our money does not stretch as far as it used to. Inflation usually creeps up gradually, but lately, it feels as though it has been raging loudly.
From 2000 through 2020, inflation was relatively tame, with many years seeing price increases of less than 2%. Since 2021, inflation has averaged much higher than the previous two decades. There have been supply chain shocks, egg shocks, energy shocks, and other disruptions. One might assume these events would temporarily increase prices, only for costs to come back down. Unfortunately, that is not how inflation works.
The most basic goal of even the most conservative investor is to ensure their money at least keeps pace with inflation.
Checking and savings accounts paying 0% to 4% can still result in a real loss of purchasing power each year.
Many banks are no longer offering the same 5% CDs they have been offering recently. Interest rates, heavily influenced by Federal Reserve policy, have fallen and are expected to come down even more. This means you may get even less growth on your cash, while inflation continues to erode its value.
Assets that have historically appreciated at rates higher than inflation include stocks, real estate, commodities, and alternative collectibles. But you can’t pay for goods or services with bricks from your home. You can’t place silver and gold coins on the table at a restaurant. And no grocery store is going to accept fine art in exchange for bananas.
Historically, the most reliable way to outperform inflation has been the stock market. Owning stocks in a diversified mix of companies, sectors, and industries has remained one of the best ways to outpace inflation over time.
Too much cash can lose purchasing power each year due to inflation. How much should you keep in cash? How much should be invested in stocks? And which investments make the most sense for you? Take the guesswork out of investing. We are here to help you build a strategy designed around rising costs, inflation risk, and your long-term financial goals.
