Your Savings at a Time of High Inflation

Money Sep 9, 2021

Firstly, this is not financial advice; it's simply my expression of views on personal finance concerning current global market trends, which, in my opinion, are not transitory. As always, I encourage conducting thorough research beyond just reading this article before making any decision.

The threat of inflation is all over the news after supply chain issues and massive stimulus that started last year, increasing the money supply and reducing the number of goods available for consumers to compete on, resulting in higher prices. A substantial amount of dollars has been created in just the past two years, and it seems that the US government is not stopping with its next trillion-dollar plan.

There's a view that central banks may taper soon, but I see this as very unlikely. The Fed hasn't really moved yet, and we've already seen a slowdown in growth, making several banks slash their US GDP growth forecasts again this year. Some attribute it to the Delta variant, but I do think it's because we're at the peak of the business cycle that the Fed has tried to suppress by never really tightening since the Global Financial Crisis of 2008.

So, what does all of this have to do with you? We all rely on the value of our money and the goods it buys. Inflation is now a global issue; even global food prices are giving us surprising numbers as we move ahead, and none of us is unaffected by that. One, in my opinion, must find ways to maintain purchasing power by combating or at least reducing the effects of inflation on their finances. Here are things that I think one should do:

Put More Money in Higher-Interest Savings Accounts

Digital banks have emerged from everywhere, offering savings accounts with higher interest rates that don't lock your money up for a specific period compared to your local brick-and-mortar ones. I think one shouldn't have to worry much if the money they deposit is fully covered by the government through deposit insurance, and they practice good cyber hygiene. However, people with millions of dollars may need to think twice before doing the same thing, as governments don't cover that much money if the bank fails.

One having their savings rewarded 2.5% is doing better than one getting only less than 1% from their bank when inflation, for example, is around 4% to 5%. It's mitigating inflation the easy way.

Allocate More of Your Money to Assets that You Believe are Good and Safe

Investing has always been a way to fight inflation and profit, rather than just mitigating the effects of inflation eating the value out of your money.

Here you have a lot of options. If your invested money earns 8% and inflation is at 5%, then you beat inflation by 3%—you actually earn money instead of just losing the value of your money without a fight. This comes with risks but should be worth it if you have evaluated the risks and know where you are putting your money. See my article, Making a Successful Investment Portfolio for more.

Invest a Bit More in Assets that Will Maintain or Even Increase their Value During a Downturn

This applies if my views are correct — that inflation will persist and the anticipated economic growth the world is looking forward to (unless you're one of those betting against it like me) will never truly materialize; instead, it would move in the opposite direction.

In my opinion, the best way to identify these assets is to look for those that haven't been propped up by artificial central bank support. I don't consider growth stocks, meme stocks, real estate, and even Bitcoin as assets that avoided artificial central bank support. Bitcoin, along with meme stocks, saw a significant increase during the issuance of stimulus checks, making it challenging to determine if it's overvalued.

I do consider precious metals, stocks related to commodity production, and Monero on the opposite side. Monero stands out due to its technological superiority over Bitcoin, despite being priced at less than 10% of Bitcoin's value.

Here's another brief list, as always. Once again, this is not financial advice. I encourage everyone to conduct thorough research, as I believe it's applicable in everything we do to improve our decision-making. Wishing you a good life always.

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