In 1990, the average price of gas was $1.15 per gallon.  By 2020 (pre-covid), the average cost of gas per gallon was upwards of $2.17.  If you saved $20 from 1990, it wouldn’t even fill a 15-gallon tank in 2020, much less post-Covid.  Inflation occurs when prices rise across the economy, decreasing the purchasing power of your money. 

The Consumer Price Index (CPI), the Producer Price Index (PPI), and the Personal Consumption Expenditures Price Index (PCE) are the primary US entities measuring inflation.  They utilize various vehicles to track the change in prices consumers pay, and producers receive in industries across the whole American economy.

The Federal Reserve (FED) is the central bank of the U.S. Just as any other central bank around the world; the US Fed is tasked with maintaining a stable rate of inflation. 

Most economists consider a small amount of inflation a sign of a healthy economy. A moderate inflation rate encourages you to spend or invest your money today rather than stuff it under your mattress and watch its value diminish.

So how do I beat inflation?  Even a moderate inflation rate means that money held as cash or in low-APY bank accounts will lose purchasing power over time.

Invest in inflation-resistant diversifiers – You can beat inflation and boost your purchasing power by investing in certain inflation-resistant diversifiers, such as certain types of stocks and bonds. Investors with a well-diversified portfolio of traditional stocks and bonds may already have some degree of protection, as portfolios such as these have historically tended to grow even during periods of high inflation. 

Take a look at your budget – Defer spending on purchases of consumer goods that have been particularly affected, such as used cars and furniture, or even groceries like pork and bacon, all of which have experienced double-digit year-over-year price increases.

Don’t get too comfortable with cash – Although tempting and almost comforting, holding cash can be counter-productive. According to Naveen Malwal, an institutional portfolio manager with Strategic Advisers, LLC.,   “Investors who can take on even just a bit of risk will typically have a better chance of keeping up with, if not passing, the rate of inflation.”

Reassess your Emergency Fund – While it’s not wise to liquidate too much of your investment assets into cash, it’s still important to be prepared for any short-term liquidity needs. Because prices are rising, you may want to add to your emergency fund to help ensure you can cover the costs of an unexpected expense should one arise.”

Reduce the tax drag – take advantage of the tax benefits.  You may be able to potentially lower your tax bill and offset the bite of inflation.

SOURCE:  Forbes Advisor | Written By:  John Schmidt | Published: 08/05/2022

How Inflation Erodes The Value Of Your Money


SOURCE:  Fidelity | Written By:  Fidelity Wealth Management | Published: 10/10/2022

6 ways to help protect against inflation