Should I Worry About Inflation?

In a word, yes. But not to the point where you make decisions you will regret. Here are some basics about inflation that you can put into practice.

Understand that over the long term, inflation decreases your buying power. $1 today will only buy $.95 worth of goods a year or so from now at 5% inflation. After several years, this decrease in buying power only gets worse. Are there some items that actually go down in price? Sure, many high tech items have dropped in price over the years. But there are also many items (and services) that have increased far more than the stated inflation rate over time.

What to do: a portion of your long term investments should be in a diversified portfolio of stocks from around the world, regardless of your age. Stocks have historically offered the best long term hedge to inflation.

Precious metals: this is a controversial topic as there are times when some say gold (for example) is a hedge against inflation. However there are also many time periods when gold provided no hedge for inflation. Precious metals also carry costs for storage and insurance. Check the provider or seller of these precious metals investments as there are many bad actors in this space. Buyer beware!

Consult your financial planner regarding the appropriate percentage of stocks you should own in your asset allocation. Avoid aggressive sales pitches for inflation-hedging investments and seemingly too-good-to-be-true investment solutions. Cash, stocks, and bonds owned directly or through mutual funds and ETFs are what most investors need to be successful and help keep inflation at bay.

 


 

Apella Capital, LLC, provides this communication on this site as a matter of general information. Information contained herein, including data or statistics quoted, are from sources believed to be reliable but cannot be guaranteed or warranted. Nothing on this site represents a recommendation of any particular security, strategy, or investment product. The opinions of the author are subject to change without notice. Due to various factors, including changing market conditions and/or applicable laws, the content may not be reflective of current opinions or positions. All content on this site is for educational purposes and should not be considered investment advice or an offer of any security for sale. Please be advised that Apella Capital does not provide tax or legal advice and nothing either stated or implied here on this site should be inferred as providing such advice. Apella does not approve or endorse any third party communications on this site and will not be liable for any such posts.

Diversification seeks to reduce volatility by spreading your investment dollars into various asset classes to add balance to your portfolio. Using this methodology, however, does not guarantee a profit or protection from loss in a declining market.

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