Inflation affects us all, yet many people find it confusing and overwhelming. In our latest video, Les and Alex Szarka provide expert insights into how inflation works, its causes, and its impact on retirement and investment strategies. Understanding its effects on your financial future is crucial as inflation rises.
What is Inflation?
Inflation is the gradual increase in the prices of goods and services over time. Les Szarka explains that it’s like watching the cost of a refrigerator or a house climb steadily over the years. A small, manageable inflation rate, such as 1-2%, is expected. However, current high inflation rates can be alarming and challenging to manage.
Causes of Inflation
Les breaks down the primary causes of inflation into two main factors: supply and demand and money printing. Supply and demand imbalances, such as those seen during the pandemic, can lead to higher prices when demand exceeds supply. Additionally, printing and injecting money into the economy can cause inflation, as more money is chasing the same amount of goods.
Impact on Retirement and Investments
Inflation can significantly impact your retirement plans and investments. Alex Szarka discusses how inflation influences interest rates and the stock and bond markets. Higher inflation often leads the Federal Reserve to increase interest rates to control rising prices. This can negatively affect both stocks and bonds, making it crucial to have a diversified investment portfolio.
The Importance of Diversification
Diversification is vital to protecting your investments against inflation. You can mitigate risks and potentially enhance returns by spreading your investments across various asset classes. Alex highlights the benefits of higher interest rates on treasury bonds and CDs, which offer attractive yields.
Planning for Retirement in an Inflationary Environment
Planning is critical when preparing for retirement during times of high inflation. Les emphasizes that it’s essential to account for the rising costs of living while planning your retirement. For example, if you need $75,000 annually today, you may need significantly more in 25 years due to inflation. Strategic planning can help ensure you have enough to maintain your lifestyle in retirement.
Conclusion
Inflation is a complex issue with far-reaching effects on our finances. Understanding its causes and impacts, you can better prepare for your financial future. Les and Alex Szarka provide valuable insights and strategies to help you navigate these challenging times. For more detailed information, watch our full video above.
If you have any questions or need personalized financial advice, don’t hesitate to contact Szarka Financial.