The stealthy menace: How inflation poses the greatest risk to your wealth
Investing is often associated with risks, especially when it comes to the volatility of the stock market.
However, when utilising strategies like diversification and investing in ETFs or funds, short-term fluctuations become less concerning in the long run.
The real threat lies in inflation, silently eroding your purchasing power over time.
Market fluctuations are a result of various factors impacting stock prices, such as economic data, profit figures, or news stories.
These short-term fluctuations tend to be temporary and noise-driven, with little impact on a company’s long-term value.
For instance, when Christiano Ronaldo’s viral incident led to a drop in Coca-Cola’s share price, the company’s value ultimately rebounded, showcasing the insignificance of short-term events.
As long as you maintain a long-term investment horizon and diversify your investments, these fluctuations should not be a cause for concern.
Inflation, on the other hand, is a persistent threat that gradually reduces the purchasing power of your money.
Even in periods of relatively stable inflation, it eats away at your wealth in the background.
Consider the example of buying a McDonald’s hamburger: as inflation raises the price, your money’s value diminishes, allowing you to purchase fewer hamburgers over time.
This same process affects all aspects of your expenses, from groceries and rent to entertainment subscriptions.
If your income and investments don’t grow at least at the rate of inflation (the latest figure was 8.7%), you will progressively have less buying power.
To combat inflation, understanding its impact is crucial.
Investing plays a vital role in outpacing inflation since keeping your money in a low-interest bank account would lead to its decline in value.
Using a simple stock trading app makes it easy to start investing on the go. Many also offer automated and hands-off features.
However, investing comes with its own risks and downsides. It’s also essential to focus on increasing your income, ensuring that your earnings keep pace with inflation.
Exploring opportunities to enhance your career or generate additional income can place you in a stronger financial position year after year.
Remember that consistent, long-term action can yield significant results, even if you start with modest steps.
By recognising the long-term benefits of investing and staying proactive in combating inflation, you can work towards securing a better financial future for yourself.
