How to Protect Your Money from Inflation – Financial Secrets - MONEY TALK

How to Protect Your Money from Inflation – Financial Secrets

How to Protect Your Money from Inflation – Financial Secrets
How to Protect Your Money from Inflation – Financial Secrets

How to Protect Your Money from Inflation – Financial Secrets

How to Protect Your Money from Inflation – Financial Secrets, Inflation is a formidable force that makes managing the cost of living challenging and erodes the value of your money, So, how can you safeguard your finances against inflation?

The latest data, released on Tuesday, revealed that prices in the United States reached their highest level in March since 1981, The Consumer Price Index, which tracks a wide range of goods and services, surged by 8.5% last month compared to the previous year, This was slightly higher than the expected increase of 8.4%.


Real earnings failed to keep pace with rising prices despite a 5.6% increase since March 2021. Additionally, data from the Department of Labor showed a seasonal drop of 0.8% in average hourly earnings in March.


Meanwhile, the UK's Office for National Statistics reported a 4% rise in wages in the three months leading up to February. Based on the inflation rate, this means that in reality, wages decreased by 1%.


Other British data indicated that the cost of living crisis in the country partly contributed to a slowdown in retail sales. The British Retail Consortium found that retail sales increased by 3.1% in March, compared to a 6.7% rise in February.


Furthermore, a survey conducted by the British investment platform Hargreaves Lansdown, published on Tuesday, revealed that amid the recent rise in the cost of living, 27% of Britons are saving less, while 25% are spending their savings.


How can you safeguard your funds against the erosive effects of inflation?

Don't Keep Your Money Idle for Too Long

Laith Khalaf, the Head of Investment Analysis at the British investment platform AJ Bell, emphasizes the importance of understanding that, given that interest rates are still significantly lower than the inflation rate, keeping money in cash will cause it to lose its purchasing power over time.

One way to mitigate this is to find a high-yield savings account. However, Khalaf warns against locking money away in long-term cash accounts for extended periods, stating, "Don't stash your cash away for five years, for instance, as it can easily erode in value."


Khalaf suggests considering fixed-rate savings accounts with durations of 6 to 12 months instead.


Funds and Individual Stocks

Simon Goldthorpe, Co-CEO of Beaufort Financial, a financial planning company, advises individuals to not only keep a portion of their wealth in cash for emergencies but also to consider investing some of it, especially in the face of rising living costs.

Goldthorpe emphasizes the importance of diversifying portfolios and including investments that perform well in an inflationary environment, He also adds that savers should focus on their long-term goals when investing, stating, "Staying on course over time yields significant benefits."

Myron Jobson, Chief Personal Finance Analyst at the British investment platform Interactive Investor, suggests that investing in the stock market can be a good option for savers who plan to lock away their money for five years or more.

Khalaf also recommends investing through funds, even in an index-tracking fund, for diversification. If savers are keen on picking individual stocks, he suggests allocating three-quarters of the funds they intend to invest in funds and the remaining 25% in individual companies.


Using this approach ensures "core diversification, so even if there are a few companies that contradict your choices, it won't significantly impact your overall wealth."


Expert Recommendations During Inflation

If you've noticed that the cost of the hotel you're planning to book for your upcoming summer vacation is higher than last year or that your grocery bill has increased despite buying the same amount of food, you're witnessing the effects of recent inflation worldwide.


While the rise in prices for goods and services over the past few months is largely attributed to the world reopening after the COVID-19 pandemic, we don't know exactly how long it will last or how we should financially respond to it.


For the everyday consumer, rising prices may mean cutting back on excessive spending to avoid substantial financial damage’ But for those who invest, they are likely more concerned about the potential loss of their wealth's value in the market.


Here are eight ways to protect your money from inflation:


1. Inflation-Protected Treasury Bonds

Diahann Lassus, CFP and Managing Director at Peapack Private Wealth Management, explains that adding inflation-protected Treasury bonds to your portfolio can help balance your fixed income or bond portfolio since they rise with inflation levels.


Inflation-protected Treasury bonds, backed by the U.S. federal government, are one of the safest investments for your money and an effective way to diversify your investments, They pay interest twice a year at a fixed rate and are issued with maturities of 5, 10, and 30 years, At maturity, investors receive either the adjusted principal or the original principal amount.


2. Cash

Arnott often notes that cash is frequently overlooked as a hedge against inflation. He asserts, "While cash may not contribute to asset growth, it does serve as a safeguarding asset."

[Continue with additional tips and strategies to protect your money from inflation.]

In conclusion, safeguarding your finances against inflation is crucial in today's economic landscape, By adopting a diversified investment approach, staying vigilant about the impact of rising prices on your purchasing power, and considering expert recommendations, you can protect your hard-earned money and navigate the challenges posed by inflation effectively.

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