The impact of inflation on personal finance is an important topic to think about, and there are several ways you can protect yourself. One method is to move money into accounts that pay a rate of return. Another method is to invest in assets that are designed to hedge against inflation.
Millennials are most likely to stop or reduce retirement savings because of inflation
There is no denying the fact that inflation is taking a toll on the American household budget. A recent survey of 1,004 Americans revealed that a quarter of them have stopped saving for retirement or trimmed back their contributions owing to the rising cost of living. Fortunately, there are some simple steps that you can take to get yourself out of the red.
First and foremost, there’s a difference between cutting back and eliminating. It’s not necessary to eliminate all of your expenditures in order to put money towards a retirement fund. The key is to find the best balance. For example, one of the best ways to achieve this is to cut back on expenses related to travel, such as plane tickets and hotel stays. Another way is to look at your lifestyle as a whole. You may find that you’re spending too much on frivolous items like dining out.
Another way to avert a financial disaster is to learn about the new tax-deferred retirement savings rules that were passed last year. These rules allow you to stash away up to $22,500 per year, while you’re still in your 20s. If you’re still working, you can add more.
And while you’re at it, the government has also announced it will allow you to make tax-deductible contributions to your 401(k) plan.
Protect against inflation by investing in assets designed to hedge against inflation
If you’re concerned about the rising rate of inflation, you should consider investing in assets designed to hedge against inflation. This will protect your investment portfolio from falling purchasing power.
Inflation is caused by an increase in the amount of demand for goods and services. It is a risk every investor faces. However, a well-diversified portfolio has generally grown during periods of high inflation.
One way to hedge against inflation is to invest in hard assets such as gold. Since the 1970s, gold has had a relatively low correlation to the Consumer Price Index (CPI).
Another popular asset class that can be used to hedge against inflation is real estate. Real estate provides consistent income through dividends and property values tend to increase during inflationary periods.
Infrastructure is another area of real estate that has the potential to provide a good inflation hedge. Infrastructure includes roads, ports, and airports.
When inflation rises, the value of these properties increases, which can increase the rental income. Office space and industrial/logistics properties remain strong.
Bonds also have a negative sensitivity to inflation. When inflation rises, the price of long-dated bonds will fall. Investing in a bond that will appreciate in value over time can help protect your capital from inflation.
Lastly, a diversified portfolio of stocks can be a good hedge against falling purchasing power. Stocks typically grow in value over the long term. They are often the best investments for inflation hedging.