If you’ve been following the financial news, then you’ve almost certainly heard about inflationAcross the world, inflation is impacting many families and individuals, and also countries as a wholeAs such, financial professional Roy YGagaza takes a look at inflation and how it may impact wealth.
“Inflation can have a negative impact on your wealthMoney loses value over time, and high inflation will cause money to lose value more quickly,” Roy Gagaza points out“Right now, there are many risks and pitfalls owing to historically high inflationHowever, it’s possible to mitigate or even benefit from inflation with the right financial strategies.”
Quite simply, a dollar today does not buy as much as a dollar did ten years ago, or even just a year agoInflation causes costs to rise, and right now, people the world over are paying more for groceries, cars, gasoline, and various other thingsThus, as inflation continues, the money you have in your checking or savings account will lose value.
Over a long time frame, inflation is pretty much constant, and over time, many things will become more expensiveUp until recently, however, inflation had for years grown at a slow but steady pace, often between 1.5 and 2.5 percentWhile even moderate inflation will slowly eat away at your wealth, high inflation presents a far more grave risk.
“Many economists believe that moderate inflation is a sign of a healthy economy,” Roy YGagaza says“You still want to be proactive when managing your wealth even amid moderate inflationOf course, high inflation poses a much more serious risk.”
Roy Gagaza Discusses Historically High Inflation
Over the past several months, many countries have experienced historically-high inflationIn the first quarter of 2022, the United States saw an inflation average of nearly 8 percent, while other countries have seen even higher inflationIn Turkey, for example, inflation has soared to 50 percentHigh inflation can quickly wipe out wealth as savings and cash, among other things, buy less and less.
“Obviously, inflation creates headwinds, especially for low-interest bonds, cash, low-interest savings accounts, and the like,” Roy Gagaza notes“That said, if your wealth is parked in assets that end up gaining value, say real estate, stocks, or precious metals, you may see your wealth grow.”
Consider that in 2019, the average closing price for a troy ounce of gold was $1,393In 2021, the average closing price was nearly $1,800Investors who bought gold back in 2019, before inflation spiked, could have seen their wealth grow, assuming they held onto their gold.
Of course, essentially any asset can lose valueReal estate was long considered one of the safest assets for protecting wealthHowever, property prices declined, sometimes dramatically, during the so-called Great RecessionWhen managing finances, it’s important to keep risks in mind.
“Anyone planning out their finances should take a holistic approach and consider a wide range of factors, including inflation, taxation, and estate planning,” Roy YGagaza says“Some assets and methods may be better at mitigating risks and preserving wealth amid high inflation, but every individual’s circumstances are different.”
Some economists warn that high inflation may remain a serious issue in the months aheadWhen considering your wealth and financial situation, it’s wise to keep inflation in mind and to understand how it could impact your finances.