In definition, inflation takes place when there is a noticeable rise in the prices of both goods and services, resulting in an equal fall of a currency’s purchasing power. This event has majorly caused serious financial woes especially for fix-waged earners, but this period can also be challenging especially for investors looking at long-term goals.
How inflation affects investors will depend on their choice of investment. Basically, as the implicit value of money fails, long-term investors have to worry about how inflation can slowly take away real savings, devaluing investment returns and at the same time, decreasing their long-term purchasing power.
Unprotected investment portfolios that lack enough diversification can be the top victim of inflation. For instance, investors who look forward to a stable income stream from fixed income securities find inflation as their number one threat. Most fixed income securities carry the same rate of interest until maturity, making its purchasing power vulnerable to decline.
As a response to the risks posed by inflation, experts—such as LOM Financial—suggest investing in equities as a more flexible and safer alternative. With this type of investment vehicle, there’s a higher possibility that the value of one’s investment can have the chance to fight the effects of inflation.
However, investing in equities doesn’t protect you from other threats that could make you lose your money. This investment option carries a high risk and should be carefully studied and assessed. Such risks are understandably a major consideration in how portfolios must be designed, including offshore discretionary management accounts.
Of course, your investing strategies should ultimately depend on your financial goals and how you want to survive in the world of investing. The only way to protect yourself from these risks is to stay informed, learn from your failures, and remember the lessons of your success.