How Inflation Affects Your Investments

It's incredible how many don't understand how inflation affects your investments and purchasing. Inflation is like a hidden tax on your investment vehicles. It is vital that you know exactly how it affects your money. This knowledge is not just for Wall Street guppies in $2,000 suits; it is also for the everyday investor looking to protect himself from the power of inflation. In this article, I will reveal to you some key factors in which inflation affects your bottom line.

1. It affects your buying power: Most people don't realize that inflation affects how much you can buy. It doesn't matter how much you make what really matters is how much you can buy with what you make or invest with. One of the biggest reasons why prices go up in a country over time is because inflation increases, and that directly affects the price on everything we use. Let's say you buy a house today for $100,000 and in twenty years that same house is $200,000 dollars. Do you have more money? Yes. But whether or not you have more buying power is dependent on how much inflation has risen. If inflation has doubled then you haven't lost buying power but you haven't gained any either. The reason is because you can't take that $200,000 and buy two of those same houses like you could have 20 years ago. You get it?!
2. Price increases on what you own: Everything tends to go up in inflation even the investments you own, but this can also have a negative affect on your investment holdings; because all the fees, charges and taxes associated with your investments can soar also which would take away money from your pockets. There are benefits to price increases also such as investing in gold and silver, when inflation rises there precious metals rise in price as well.
3. An increase in business expenses: Owning a business during inflationary times is not the greatest idea. Prices on all things needed for the business to continue operating go up. Not to mention, it forces the business to increase its prices for the products it sells. This can greatly affect the growth of the business as well as its annual sales.

 Resource:

 Investopedia