Inflation is the increase in the general level of prices. As prices rise, each of your dollars buys less items. For example, if a bottle of water costs $2 today, and inflation averages 4% for the next ten years, the same bottle of water would cost approximately $2.96 ten years from now.
Inflation can have a negative effect on your financial well-being, as it reduces the purchasing power of money over time. However, it is important to remember that inflation is a normal part of the economy. The best strategy to protect yourself from inflation depends on your individual financial situation, risk tolerance, and time horizon. Your Domain Advisor can help you establish a strategy to that works best for you, but below are a few ideas to keep in mind:
Consider utilizing a high-yield savings account for your emergency fund or other short-term savings goals. The interest your money will earn can help offset the effects of inflation.
Consider investments that have the potential to increase in value or earn a higher interest rate than the average inflation rate for your long-term goals and retirement savings. In an inflationary environment ‘hard’ assets like real estate and commodities also inflate along with consumer goods. Investments such as stocks, bonds, and real estate may be able to help offset the effects of inflation.