Video: What is Inflation? Why is it potentially damaging to your retirement?
What is Inflation? And what are the three ways we see inflation in our day to day lives.
Hello, this is Jeff Bowers, Certified Financial Planner with Plan2Retire. Today we are going to discuss something I refer to as the retirement plan silent killer, Inflation.
I will review:
What is inflation?
The three ways we often see inflation and lastly give some examples of inflation and some steps you can take to minimize inflation.
First off, what is inflation? Websters dictionary defines inflation as a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services.
In plain English, inflation means the cost of something I bought recently is more than the cost of the same item I purchased in the past.
So how do we experience inflation in our daily lives. Well, the obvious way is when we see the price of a good or service go up compared to the last time we bought the item. An example would be the increasing cost of food or the increasing price of a utility service like cable TV.
Another way we see inflation is what I call size inflation. What do I mean by size inflation? Have you noticed how a bag of potato chips has a lot less chips and lot more air? How about the fun size of a candy bar? Apparently fun is not the same size as in the past.
Then there is the type of inflation that comes due to a shortage of an item. To give you an example of this, recently, I tried to purchase a particular bicycle part but I was told the part was not available yet. I thought that’s interesting because the company that made this part had spent a lot of time and money advertising the part and promoting the part on social media. Apparently, the company only manufactured a limited supply of the part so they would not be stuck with unsold inventory if the part didn’t sell. Then when demand indicated that more of this part was needed, the company would manufacture more but at a higher price.
Now what are some ways you can combat inflation. Well, if you are able, buy in bulk. Obviously, many people have done this recently with toilet paper and maple syrup. Another way is to purchase seasonal goods and services out of season. You know buy winter gloves in April.
With regards to your investments, make sure you are investing your retirement money in an appropriate, long term, diversified portfolio that suits your needs. Be careful if you load up your long-term savings with fixed, low return investments. It only takes a small increase in inflation over many years to do real long-term damage.
If you would like to talk in more detail about how inflation may impact you, feel free to use the link down in the description to schedule a no-obligation phone call. Also, if you liked this video, please hit the subscribe button below.
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Thank you and have a great day!