How much will $1 be worth 10 years from now? It all depends on the rate of inflation. Inflation is an increase in prices which, in turn, means a decrease in purchasing power. As prices increase, it takes more money to purchase the same goods and services.
You might not notice the subtle erosion of purchasing power early, but over the years most people can’t help but recognize its impacts. Take for example the cost of a postage stamp. In 1975, you could mail a letter for only 10 cents. Today, it costs 49 cents to mail the same letter. That’s an increase of more than 400 percent.
Inflation not only impacts the goods and services we purchase, but over time it can have a crippling effect on retirement savings. Regardless of the amount of your savings, your investments face the constant threat of inflation. This may make you feel insecure about whether you will have enough saved when you retire. It’s important to make sure your investments grow faster than the rate of inflation.
Long term, the best chance for your investments to beat inflation is to diversify your portfolio with stocks. Many financial planners suggest a diversified asset mix that includes a substantial percentage of stock investments. For example, even at a low 3 percent annual inflation rate, $40,000 in income today would have to become $54,000 in 10 years.
Although stocks and stock mutual funds are riskier than other investment types, they can increase your potential for portfolio growth and help counter the effects of inflation. Even if you are already in retirement, it’s important to keep a diversified portfolio that will grow faster than the rate of inflation so you can preserve your assets for many years.
Protecting your portfolio against the threat of inflation begins with a review of your current investments to make sure their performance provides returns above the rate of inflation. Talk to a Country Financial representative for help in determining the right investment mix to meet your retirement needs.
Information from Investment management, retirement, trust and planning services provided by Country Trust Bank,® a part of Country® Financial, Bloomington, Ill. Products of Country Trust Bank are not FDIC insured, not guaranteed and may lose value.
Information provided by Zach Welter Country Financial, 650 S. Prairie View Drive, Suite 200, West Des Moines, 515-223-7182.