Guest author Jason Harter speaks to answering how inflation may be affecting your investments.
When you have investments out in this big and bold world of finances, it's understandable that you'd be worried about them. Of course, you want to know how inflation is going to affect your investments, and now, you can find some answers.
A Personal Guide
So many different types of investments exist, and you do not want to find information for the incorrect type of investment. Therefore, you need to be sure that you are having a conversation with your certified financial planner or accountant before making any big moves. If you don't, then you are setting yourself up for a problem. You should discuss your specific financial situation with this individual and decide what the best plan is for you.
Investopedia's article "What Is Inflation and How Should It Affect My Investing?" discusses how inflation could pose a risk for you. The article describes it as thus, "For example, if ABC stock returned 4% and inflation was 5%, then the real return on investment would be minus 1% (5%-4%)." If you were in this specific predicament, then you could certainly wind up losing money. As a solution to this particular problem, Investopedia says that you should look toward inflation-protected securities. When you have these options, you do not have to fear the aforementioned issue happening to you and your investments.
Not Really Earning
Another problem that you might face when you go to invest is that you are not really earning money. Instead, it seems as though you are earning some funds, but in actuality, you are not. This problem is represented by Investopedia's article entitled "Inflation: Inflation and Investments." The writer notes, "Suppose that a year ago you invested $1,000 in a Treasury bill with a 10% yield. Now that you are about to collect the $1,100 owed to you, is your $100 (10%) return real? Of course not!" As you can see, you are not really earning something in this particular situation.
Fixed Income Individuals
Both the aforementioned Investopedia article and Boston University's piece by David Gerolamo entitled "Inflation and Its Effects on Investment" refer to how people living on a fixed income are often hurt by inflation on their investments. For example, think of retired individuals when you want to envision those living on a fixed income. As Gerolamo writes, "Inflation causes many distortions in the economy. It hurts people who are retired and living on a fixed income. When prices rise these consumers cannot buy as much as they could previously. This discourages savings due to the fact that the money is worth more presently than in the future." Unfortunately, these problems are quite real for many individuals.
Many individuals are experiencing trouble with their finances, and they do not know how to get out of these situations. Instead of running into a number of problems, it is wise to know how inflation may affect your investments. Therefore, you should really sit down with a person who is professional in the field of finance now.
Author Jason Harter obtained his online masters in finance and now works as a stock portfolio pro