How to Keep Inflation from Taking Your Money

Inflation is a thief. But instead of taking your wallet or raiding your jewelry box, it picks just 3% of your pocket each year. The effects are subtle, but over time your dollar will have less and less buying power.

What can you do to protect yourself? Keep your money growing. Whatever savings or financial solution you choose, make sure it has the potential to earn at least 4% each year. (Your earnings will be taxed, leaving about 3%.)

The good news is that you can beat inflation using financial solutions that pose very little risk to your money—or no risk at all. Two examples of low-risk financial solutions are U.S. Savings Bonds and Treasury Inflation Protected Securities (TIPS). Or, depending on the current interest rate, you could earn 4% or more from a simple high-yield savings account or CD.

Moderate-risk investments can also help you guard against inflation. Risk and return usually go hand in hand—the greater your risk, the more potential you have to earn a larger return on the investment. This means that if your time horizon is long enough, the good years can potentially balance out the bad years.

As a hypothethical example, say you invest in a mutual fund that has an average return of 8% each year. Based on an annual inflation rate of 3%, the real return is more like 5%. That extra 5% means that even if the mutual fund has a bad year and loses some of its value, your overall return can potentially outpace inflation over the long-term.

If you think you may need the money within the next few years, or you can’t afford to risk any of your initial investment, then one of the low-risk financial solutions may be better for your needs. 

Make This Work for You ...in 15 minutes or less  Learn more about the different types of savings accounts and mutual funds ...in 1 hour or less  Work with your financial professional to make sure your money has the potential to       outpace inflation

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