How to Protect Your Savings from Inflation

Inflation is something we can never get rid of. In some years, inflation has risen by a small percentage, and in other years, we have seen increases of up to 8%.

What inflation does to our economy and our savings is reduce the value of what we had before.

As prices rise, the real value of each dollar declines. That’s why knowing how to protect your savings from inflation is so important.

What is inflation?

It’s a word we hear a lot in the news and financial headlines. Especially in recent months, as international conflicts continue and the US election approaches, the financial state of the world is changing, and inflation continues to rise.

But what exactly does inflation mean? Simply put, when inflation rates rise, the prices of goods and services rise, which reduces your purchasing power because the currency is now worth less.

What are the causes of inflation?

➡️ Increased demand for goods and services
➡️ High production costs
➡️ Supply chain disruptions
➡️ Excessive money supply

Inflation is usually calculated by: Consumer Price Index (Consumer Price Index) or Producer Price Index (PPI). Here is a chart showing inflation rates over the past 10 years in the United States. You can see that the years following Covid have seen a significant increase in percentage rates.

Ways to protect your savings from inflation

As the cost of goods rises not only in the United States but around the world, our purchasing power declines, making it imperative to adopt strategies that protect our savings and investments.

One of the most effective ways to protect your savings from inflation is to: Diversify your investment portfolio.

Diversification means spreading your investments across different types of assets. This can include cryptocurrencies, bonds, ETFs, index funds, real estate, and stocks. When you invest money for growth, you want to make sure it’s safe.

Diversifying your investments protects you from inflation by reducing the risk that a single investment will negatively impact your entire portfolio. When you balance your investments across asset types, you can resist some of the pressures of inflation.

Bitcoin and other cryptocurrencies

Over the past decade, Bitcoin has earned the nickname “digital gold.” It has grown in popularity as a hedge against inflation due to its affordability. Limited supply (21 million total existing) and Decentralization.

Unlike fiat currencies printed by central banks, Bitcoin is finite, meaning its finiteness makes it resistant to the inflationary pressures we see with fiat money.

✅Positives

• Potential for High Returns: Bitcoin has historically grown tremendously and provided high returns to its early investors.
• Protected from depreciation: Since BTC is a decentralized digital currency, it is not subject to the same risks as government-issued currencies.

❌cons

• Not widely adopted (yet): Despite BTC’s growing popularity, Bitcoin and other cryptocurrencies have yet to be accepted into the mainstream for everyday use.

✴️Professional advice

When investing in Bitcoin to protect your savings from inflation, rely on Bitcoin Material As a safe and easy-to-use option to buy and protect your cryptocurrencies.

Material Wallets are rated as one of the best hardware wallets available, allowing you to securely buy and store Bitcoin directly from the wallet. They store your private keys offline, and are made of stainless steel to protect them from water and fire damage.

Bonds

Bonds are known as a conservative investment strategy, offering a “more predictable” return and lower risk than stocks or cryptocurrencies. Bonds, especially those issued by governments, pay regular interest payments, which is a stable return.

✅ Positives

• Predictable returns: Bonds offer fixed interest payments, which are ideal for investors with a low risk tolerance.
• Lower Risk: Compared to other investment strategies, bonds are generally less volatile.

❌ cons

• Lower returns: Historically, bonds have lower returns compared to stocks and Bitcoin, which may not keep pace with inflation in the long run.

✴️ Professional advice

When investing in bonds to protect your savings from inflation, consider including Treasury Inflation-Protected Securities (TIPS) in your portfolio.

Treasury Inflation-Protected Securities (TIPS) are government bonds designed to protect investors from the effects of inflation. These bonds work by increasing with inflation so that your investment maintains its purchasing power.

Exchange Traded Funds and Index Funds

Exchange-traded funds (ETFs) and index funds have become popular investments. They are ideal for beginners and those looking to diversify their portfolios. They track the performance of specific indices, such as the S&P 500.

✅ Positives

• Diversification: ETFs and index funds diversify your assets by spreading investments across different sectors and asset classes. Commodities, such as gold or EncryptionYou can be part of it, and companies and entities can too.
• Inflation protection: Because ETFs and index funds can include different assets such as stocks, commodities, and real estate, they can provide better protection against inflation than traditional fixed income investments.

❌ cons

• Limited Control: As an investor, you have no control over the individual securities of an ETF or index fund.

✴️ Professional advice

When investing in ETFs and index funds to protect your savings from inflation, look for funds that track commodities, real estate, or specific sectors that have historically performed well during periods of high inflation.

It requires a little research on your part, but it is a useful asset when understood correctly.

Real estate

Real estate is a reliable investment for those looking to protect their savings from inflation as it can generate income through rentals and appreciate in value over time.

Property values ​​and rents typically rise with inflation, making real estate the ultimate hedge against rising prices.

✅ Positives

• Potential for Appreciation: Real estate values ​​typically increase over time, especially in high-demand areas.
• Generating Income: Rental properties provide a steady income for their owners. As inflation rates increase, property owners can raise prices to reflect these changes.
• Tangible Assets: Real estate is a physical asset, which gives a sense of security to its owners.

❌ cons

• High initial cost: Purchasing real estate requires a larger initial investment.
• Maintenance and upkeep: As the property owner, you are responsible for updating and fixing any problems, which can be expensive.
• Illiquidity: Depending on the market and demand, real estate is not as liquid as stocks or cryptocurrencies. It can take a long time to prepare and sell the property.

✴️ Professional advice

If you have the disposable income to make larger investments, we suggest you diversify your real estate portfolio.

This means buying residential and commercial properties and even real estate investment trusts (REITs).

Stores

The stock market has proven to be a powerful investment tool over the past century. A stock represents ownership in a company or entity that can adjust its price and earnings to keep pace with inflation. This makes the stock market adaptable.

This doesn’t mean your money will always grow with stocks – of course there are risks involved and markets go up and down – but stocks’ adaptability makes them good options during periods of rising prices.

✅ Positives

• Potentially high returns: Historically, stocks have provided high returns over the long term, and in some years, they have even outperformed inflation.
• Resistance to depreciation: When inflation rises, companies are quick to adjust their prices to reflect higher costs. This means that the value of the stock can rise as well.

❌ cons

• Volatility: Stocks can be highly volatile in the short term. Market fluctuations can cause significant changes in your investment portfolio, which could negatively impact your savings depending on your risk tolerance and investment strategies.
• Economic Sensitivity: Stock performance is closely linked to the economy. This means that if there is a major economic slowdown, it will negatively impact stock prices.

✴️ Professional advice

When buying stocks, diversification across sectors is vital to your success.

Try investing in small cap stocks, large cap stocks, and in different sectors like technology, healthcare, logistics, and more.

Protect your savings from inflation

Protecting your savings from inflation has never been more important. Diversifying your investments is the best strategy to protect your money and hopefully increase your wealth during periods of rising prices.

Stores And Exchange Traded Funds It provides growth opportunities and helps keep up with inflation because it diversifies your stocks.

BondsDebt instruments, especially Treasury Inflation-Protected Securities (TIPS), provide you with stability and inflation-adjusted returns.

Real estate They can generate rental income and can appreciate in value over time, forming a powerful hedge against inflation.

Including Bitcoin as a long-term investment strategy would add to the strengths of your investment portfolio.

Bitcoin’s limited supply gives it unique protection against currency devaluation and inflationary pressures and, as it has proven over the past decade, its return on initial investment is astounding.

By blending traditional assets with modern investment options like cryptocurrencies, you can preserve and increase the value of your savings, giving you financial stability and peace of mind in the face of inflation and economic changes.

common questions

How does inflation affect your savings?

• It reduces the purchasing power of your savings. This means that your money buys fewer goods than before because prices have risen.

Why are savers affected by inflation?

• People who have savings and have not invested them properly may be hurt by inflation because the real value of their saved money declines.

Are savings accounts safe from inflation?

• No, traditional savings accounts are not inflation-proof because their interest rates typically do not keep pace with inflation.

Is it good to save money during inflation?

• Consider investing in assets that offer higher-than-inflation returns to preserve the value of your savings.

Is it possible to lose the money in my savings account?

• Yes, if the interest earned on your savings is less than the rate of inflation, you lose.

Am I losing money due to inflation?

• Yes, if your savings do not grow at or above the rate of inflation, you lose purchasing power over time.