Inflation has returned. MOSTPHOTOS
Today, it may be fashionable to invest to make your own dreams come true or even for a tolerable retirement, but in ancient times, one reason to invest was completely above the others. It was inflation. For the account saver, it meant acidifying the hard-earned money into the vault of the bank. The phenomenon was familiar to everyone from grandma to grandpa.
Inflation means the depreciation of money. When inflation soars, a hundred months from now, you will get less stuff from Ikea than you still have today.
I didn’t choose Ikea by chance, for example. Namely, shortly before the new year, Ikea announced that it would increase its prices by almost 10% this year, as suppliers and freight companies have also increased their prices. This is how Ikea puts the damage around. The payer is an Ikea customer.
In recent years, the general trend has been quite the opposite. Thanks to globalization and rising productivity, product prices have really only fallen. Ikea is a good example of this too. 30 years ago, no one could have imagined renewing sofa furniture around. Now you can get the equipment cheaply from Ikea or, if there is not enough money, from the recycling center, where a couple of years old and in good condition sofas have been dumped in the way of new ones.
For the last ten years, we haven’t really had inflation at all. The money has been in the bank account just fine, as there has always been some kind of discount that has dropped many prices.
Now this is all changing. Inflation has returned.
The main culprit is Korona, which has complicated supply chains. But there are others to blame.
Globalization is coughing up various trade wars. The green transition to a more sustainable lifestyle costs and is now reflected in the price of district heating, among other things. The latest tilt is coffee, the price of which is raised by extreme weather events in the coffee-growing area. It should be clear that they will not run out.
All of these factors mean that the money now lying in the bank account is actually getting sour there.
There are two ways to protect yourself from inflation: by investing or spending your account empty.
Because making an account conditionally smooth is both naughty and easy, I focus on investing.
Traditional investments, such as equities or mutual funds that own them, are in themselves a hedge against inflation. After all, shares are shares in companies – even those that are now raising their prices. Unlike a bank account where money does nothing, companies continue to operate. Competitive companies can push inflation into their prices, and investors get their returns.
The world of an equity or fund investor will therefore not fall into inflation. In fact, inflation is a normal and healthy economic phenomenon.
But for the account saver, it’s an enemy. For them, the situation is grim. The stock market has enjoyed a long rise, but this year is expected to be more bumpy. Starting investing can feel more intimidating than normal.
However, if you have money in your account that is not needed for a while, you should now consider starting to invest. Getting started is worth doing a little at a time, even for a year’s project. During this period, the extra account savings can be transferred to the mutual fund in the simplest possible installments. There is a lot of information available today that is easy and free to find.