It’s in the news: “Inflation is on the rise!” So what? We haven’t had high inflation in a long time. If we experience short-term inflation related to COVID supply chain issues, that’s not too bad. If we experience long-term inflation and price increases are “here to stay” for a while, then investors should make sure their portfolios have the ability to keep up with these price increases.
Two things I want you to know:
- Why is inflation bad? Well, if you have $100k in the bank and there is 5% inflation, then your 100k cash can now only buy 95k worth of goods at the end of the year. In short, you’ve experienced a 5% loss of purchasing power. This is not good.
- What assets can offset inflation? Assets that have traditionally offset inflation (or kept up the prices increases) are:
- Real Estate & Real Estate Investment Trusts (REITs)
- Treasury Inflation Protected Securities (TIPS)
If you have concerns about inflation or how to manage your cash, give us a call. We would be happy to discuss inflation risk with you.