How Does Inflation Affect Me?

Are you saving for retirement? For your children’s education? For any other long-term goal? If so, you’ll want to know about a sometimes subtle, yet very real threat to your savings: inflation.

Inflation is the increase in the price of products over time. Inflation rates have fluctuated over the years. Sometimes inflation runs high, and other times it is hardly noticeable. The short-term changes aren’t the real issue. The real issue is the effects of long-term inflation.

Over the long term, inflation erodes the purchasing power of your income and wealth. That means that even as you save and invest, your accumulated wealth buys less and less, just with the mere passage of time. And those who put off saving and investing will be even deeper in the hole.

What Can You Do About Inflation?

The effects of inflation can’t be denied — yet there are ways to fight them.

Historically, one of the best ways has been to utilize growth-oriented alternatives. Stocks, stock mutual funds, variable annuities, and variable universal life insurance may be options to consider. These alternatives provide the potential for returns that exceed inflation over the long term.

Growth-oriented alternatives carry more risk than other types of investments. Over the long term, however, they may help you stave off the effects of inflation and realize your financial goals.

As you focus on growth, remember that prudent investing calls for diversification. Don’t risk all your wealth in aggressive investments. Consider other alternatives to balance your portfolio, and choose all your investments with an eye toward your tolerance for investment risk.

© 2006 Emerald Publications