How do experts recommend investing your savings so that they do not lose value due to inflation?
A penny saved is a penny earned. However, inflation can take a toll on the value of the money you’ve tucked away if not invested right.
Americans are encouraged to save for rainy days and retirement. But when inflation surges, as it has over the past few years, that money squirreled away can lose purchasing power.
However, with the right investments the return on the money you are tucking away can help your savings keep pace or, even better, grow faster than the rising cost of living. Here are some of the ways that experts recommend investing your savings so that they do not lose value due to inflation.
How do experts recommend investing your savings so that they do not lose value due to inflation?
When building your nest egg, experts recommend that savers diversify their investments to hedge against fluctuations in different parts of the market. They also advise to take a long-term approach to your investments and to avoid panicking during market corrections.
Savings accounts
The money you keep in a standard savings or checking account won’t earn you much interest. But putting that money in a high-yield savings account or a money market account that is FDIC insured will not only get you a better return on your savings but also has very little risk. Additionally, your money will generally be at your disposal should an emergency arise and you need to get your hands on cash quickly.
Bonds
Another relatively safe way that you can invest your savings so that they keep up with inflation are Treasury Inflation-Protected Securities (TIPS). These bonds have maturity terms of 5, 10 or 30 years and are backed by the US federal government. They pay out interest twice a year at a fixed rate.
TIPS are indexed with the Consumer Price Index so as inflation rises, so does the principal, and vice versa, which means the periodic payouts can vary. When TIPS mature the principal amount may be higher than the original amount but never lower.
The government also offers Series I Bonds to regular investors, which have a 30-year maturity and whose interest rate is a combination of a fixed rate and an inflation rate that can change every six months. Unlike TIPS, they are not marketable, i.e. you cannot resell them, only redeem them after possessing them for at least one year. However, if you cash them in before five years have passed you lose the last three months of interest accrued.
Securities and other investments
Other investments that can have variable levels of risk associated with them are stocks, precious metals and real estate.
Returns on stocks generally beat inflation. Experts recommend for the average investor who doesn’t want to actively manage their stock portfolio that they put their money in mutual or index funds. These track the performance of a specific market index.
Savers can also look into REITs, or Real Estate Investment Trusts, who aren’t looking to directly purchase a piece of real estate. There are also mutual funds that invest in REITs.