Inflation Won’t Kill Your Retirement, But Interest Rates Might
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With everyone raving about the catastrophic inflation the US is currently experiencing, many retirees and prospective retirees are asking what they can do to secure their retirement. The good news is that while inflation can hurt your wallet in the short term, it's not a big concern when it comes to retirement savings.
The way we prepare for retirement is fairly immune to inflation
Today, most people use a combination of a 401(k), an IRA, and Social Security to fund their retirement. This is a good thing because when inflation goes up, so does the value of stocks. A stock is anything you own, such as a stock, bond, or house stock. Since the 401(k) and IRA values are based on equities, this means that when inflation rises, so will the 401(k) and IRA values.
Rising interest rates are the real problem
In an inflationary panic, we hear only one-sided stories such as soaring food prices. But in practice, inflation has no real impact on retirement accounts. Rising interest rates are slowing the market and hurting portfolios.
When inflation rises, the federal government raises interest rates to keep people from spending and to keep inflation under control. The speed at which money moves is called the speed of money. The slower money moves in the economy, the lower the inflation rate. A slowdown in cash flow has negatively impacted the value of retirement accounts. The less profitable the company you invest in, the less profit you will get from that stock.
Tips to Protect Your Portfolio Now
To ensure your portfolio is protected in volatile markets, there are a few things you should discuss with your financial advisor.
Ask your financial advisor to assess how you are currently positioned to hedge against rising interest rates.
Check out circular investing, also known as value investing. These are big brands that you already know and love that are consistently making positive returns and may be in business forever. also tend to be safer in the long run. The real problem with inflation is putting money in savings accounts. Over the past five years, inflation has made him nearly 20% worth less than someone who just keeps money in a savings account. If you have money in your savings account, talk to your financial advisor about putting some of it into the stock market. Investing during periods of high inflation has its advantages.
Stocks that pay dividends can have a positive place in this economy. Dividends are part of the company's profits. Therefore, the company reviews earnings quarterly and pays an additional percentage to encourage shareholders to hold their shares.
Even if you want to stop investing now, there are ways to maximize what you have already invested. Ask your financial adviser if there is an advantage in moving funds to another position in this market.
There are certain stocks you can buy right now that are basically sold at a discount, but it's all because of inflation. This could be an opportunity to buy undervalued stocks to boost the market. Markets are cyclical, so don't panic
The market is always back. Even in his eighties, when there was a recession and inflation that reached 14.5%, everything turned around. To know that the economy is cyclical, rely on history. It goes up and down, but eventually levels out. It just takes time. The information provided here is not investment, tax, or financial advice. Please consult a qualified professional for advice regarding your specific situation.
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