Beating inflation through investing
By investing your money over time, you can increase your “buying power” as inflation drives up prices of everyday items.
April 1, 2021
Investing is simply defined as using your money to buy something with the intention that it could grow in value. Now, what's inflation? And what’s it got to do with investing?
We all know the price of most things goes up over time—from clothing to groceries, home goods, and gas. Even your morning cup of coffee is more expensive now than it was in 1990.
This is inflation, and it’s one of many reasons why putting your money somewhere that it can grow at the same pace as (or even faster than) inflation is a good idea. This helps you hold onto what's called your "buying power."
Think about it this way: Today you buy a gallon of milk for $3. However, 2 years from now that same gallon of milk costs $3.10, so your $3 would no longer be enough to buy it. With inflation, you're not able to purchase as much in the future with the same amount of money. The 10-cent increase in milk might not seem like much now, but as prices rise for the things that you spend your money on regularly, those increases add up!
Here's the bottom line: It's important to find ways to help your money grow, or you may start to lose your buying power over time. Money in a bank account will generally pay you small amounts called interest. But right now, interest rates are extremely low, so money held in the bank may not grow enough to keep up with inflation.
On the other hand, money that's invested in stocks, for example, has a much greater opportunity for growth (but also greater potential for risk, as the value of stocks goes up and down).
Historically, though, money invested in the stock market has grown significantly more in the long run than money sitting in a bank account. So buying investments that have the potential to increase in value to keep up with (and even beat) inflation can help you protect your buying power.