How inflation relates to investment choices?
So what is inflation? Years ago with a hundred dollar bill we can buy weeks of grocery. Nowadays the same amounts of money hardly buy us anything. When I got my first car I filled up my tank of gasoline for around 20 bucks. Now it cost me more than double of what I paid in the past. Why do you think the same bills in the past buy us less goods and services now?
The cost of living is increasing because of inflation. Inflation means a sustained increase in the general level prices for goods and services. It measured as an annual percentage increase to the prior year. The purchasing power of a dollar decrease as inflation increase; however, you would not notice much from time to time, but over a long period of time your paycheck purchasing power would decrease substantially as the prices of goods and services keep going up.
How inflation relate to investment choices? Since youth, my parent had taught me that I needed to save money in the bank. However, is this the correct way to invest our money for the future provides with rapid increase cost on food, clothing, transportation, education, healthcare, and housing etc… Major banks in the U.S offers CD at around 1 % interest; however, according to the bureau of labor statistics as of today the inflation rate measure by CPI is at 3.4 %. What does this mean to us? It means for every hundred dollar we saving in the bank will lose around 2 dollar in value per year. How do you like the idea about saving in the banks now? I don’t know about most of you but I invest because I want a positive real return.
There are many financial instruments available in the financial market which one do you prefer?