Inflation. The one thing that devalues our money, but is also necessary for the economy. Reason? We need inflation to push people to continue spending on goods with the “threat” of losing buying power. However, inflation must be kept in check as to not exponentially grow where we need to be pushing wheel barrels of money to buy a loaf of bread. We have seen this happen in other countries and the disaster that is left behind as a result. Now that that has been established, will inflation be a problem for us heading into the 2020s? NOTE: I AM NOT A FINANCIAL ADVISOR.
“Inflation” can be seen in the stock market where the market has been constantly disconnected from the reality of the economy. While large groups of people are suffering, all three major stock indices have hit all time highs. While this is not the traditional definition of inflation, one can argue this is “asset” inflation and can only wonder if the inflated stock market will continue when the economy fully reopens, and people are able to go back to spending as they were before with travel and dining, potentially taking money out of the market for spending. There have been a number of articles stating the record amount of money in the stock market or the number of people investing within the market.
While this may cause fears of potential inflation, I have to look at it with belief in the Federal Reserve to have had learned their lessons from the past with certain safety measures kept in place to keep inflation far from double digits. I absolutely do not see an issue with anything near double digits. In addition, the Federal Reserve has stated multiple times that they are not planning on increasing interest rates for another couple of years. I also believe that the pandemic created fear within people that will cause them to save more. This thought was reinforced by a video by a YouTuber I watched recently. Regardless, if you are worried about inflation being a problem, here is a great way to protect your money.
How You Can Hedge Against Potentially Higher Inflation
Get in the stock market. The stock market tends to ride with the wave of inflation and beat inflation. Prior to the most recent correction this past March, the market has done well through the recovery from the recession with the major indices, the S&P 500, the Dow Jones and the NASDAQ, up 14.4, 5.4, and 41.8 percent, respectively. The NASDAQ has far outdone the other indices, both of which have done relatively well this year given what happened back in March.
If you are worried with picking the “right stocks” and would prefer a much simpler way of investing that would yield great results without the need to be constantly staring at earnings or even looking at the overall health of the market, I would consider investing within mutual funds (AKA index funds), which tracks major indices such as the S&P 500. My favorite is the Schwab S&P 500 index fund, SWPPX. Another favorite of mine that I have just added is Invesco’s NASDAQ fund, QQQ. This one is technically an ETF, but is similar enough where it tracks the overall NASDAQ which is more tech heavy.
Savings accounts, even high yield savings accounts, are a slap across the face. “High Yield” savings accounts are maybe 0.6% which pales in comparison to the average inflation levels we have seen in the past decade of about 2%. This means your money in these savings accounts are losing over a percent in buying power every year. Get invested in these index funds to have a much better chance hedging against inflation.
I personally do not see a “problem” of inflation coming out of 2020. While we are printing a ton of money for stimulus packages to help the large groups of individuals who have been affected, some of them are “hording” this money which can be an issue once the economy completely opens up. People are fearful of this leading to a sharp increase in spend in various goods and services which naturally drives prices of those goods and services up (basically the definition of inflation).
My personal belief is that inflation should not be an issue but should it be, I want to be in the market which performs well over the long run and tends to soundly beat inflation. If you have yet to start investing, check out the referral links down below for WeBull and M1 Finance, both of which are giving great deposit bonuses for first time users. But until next time…
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Checking out, Kenny
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