Learn tips and investment strategies to prevent inflation from eroding the value of your money now and in the future.

15 minute read

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If you’ve been hearing a lot of experts musing about whether inflation will rear its ugly head, you might be wondering if you should do something different with your money. Many economists believe that higher than normal prices of goods and services will be temporary.

When the economy is fully open and manufacturing and shipping bottlenecks get cleared, we should see the inflation rate drop to pre pandemic levels. However, no matter if inflation in the United States is temporary or longterm, it’s smart to consider what it means for your finances. That’s what we’re going to talk about today. We’ll review what causes inflation and tips to keep it from causing you to lose money now and in the future. Hey everyone. And welcome back to the money girl podcast. I’m Laura Adams, a leading personal finance and small business expert. And award-winning author. I’ve been writing and hosting money girls since 2008. And I am so grateful and honored that you keep tuning in and downloading each weekly episode. Thank you so much for subscribing reviewing the show, sharing it with your friends and sending me your questions.

This show is all about delivering financial education tips and advice that I hope will inspire you. And maybe even being a little entertaining. I believe that if you don’t know how money works or the exact next steps to take, it can be almost impossible to make the right decisions and improve your financial life. So if you’re looking to improve your finances, you are in the right place. Let’s get started with a few of your questions and then we’ll dive into today’s show. The first question comes from Francis J who says, is it possible to refinance my mortgage for a lower interest rate? If I owe less than $48,000 on my $180,000 home so far, I can’t find a lender that will approve me. And I don’t want to just keep having hard inquiries on my credit just to be turned down. Thank you Francis for your question.

Yes. Some lenders may shy away from doing a mortgage refinance. That’s less than about $50,000 because they may not make much or any profit on the deal. However, don’t let that stop you from continuing to shop around. Now, what you want to do is shop within a window of about two to three weeks. If you do that credit scoring models are smart enough to that you’re shopping and they don’t penalize you for it. Well, potentially Anders do make hard inquiries to check your credit score before approving you for a new loan. When you’re in that shopping window, it will only be counted as a one inquiry during the shopping period. So even if you’re getting multiple quotes from multiple lanes, Anders, it will only look like you’ve got one hard inquiry on your credit report. In general, doing a refinance is going to be worthwhile.

When you can reduce your interest rate, get a lower monthly payment or shorten your loan term. Frances did not mention how many years are left on the loan. Remember that if you’re just a few years away from paying off a mortgage and you refinance it to a new 30 year loan, you’re stretching it out. And you’re adding many more years to your loan that could cause you to pay more interest over the life of the loan. If you stay in your home for that full 30 year period, however, most people do sell their home long before they pay off their mortgage. So what I would recommend Francis is getting a side-by-side comparison from any potential lender that will show what your current loan is and what is going on with a new loan that they’re proposing. You want to be sure that you, after you factor in the cost of refinancing and the likely timeline for how long you’ll stay in the home, that it will save you money compared to just keeping your current mortgage.

I hope that helps again, keep doing your research and shopping around. Just make sure you do it within that short time period. All right. Another question came in from Nissa B, who says I’m thoroughly enjoying your podcast and have been a fan for a while now. Thank you for what you do. I have a question about using the 4% rule to withdraw money in retirement. Is there an ideal asset distribution of stocks and bonds for this strategy such as 80, 20, 60, 40, or could it be anything Nisa? Thank you. You so much for being a fan and a podcast listener. Yes. The 4% rule is frequently used as a rule to guide retirees. It suggests that if you add up your investments, you should withdraw no more than 4% of the total during your first year then and adjust for inflation in future years. So here’s an example.

Let’s say you have a million dollars in your retirement nest egg. You would spend 4% or $40,000 in the first year in the second you’re you would adjust for any inflation. So you would, it’s like giving yourself a cost of living raise. Let’s say the inflation rises percent in the next year. You would increase your withdrawal by 1%. So you would withdraw not 40,000, but $40,400. And that second year and so on. The idea is that if you stick to this simple formula, you are not likely to run out of money during a typical year retirement period. Be sure to factor in all your income sources. So include any required minimum distributions from your retirement accounts include your social security, income and pension income, real estate, investment income, or any non-retirement account. You may have all those income sources reduce the amount that you need to withdraw from your retirement nest egg.

Right? So getting back to NICE’s question, the 4% rule assumes a fairly conservative 50 50 stock to bond allocation, which is typical for retirees. Now, if you tend to be more conservative, if you are holding more than 50% of your retirement portfolio in bonds or cash, you might want to adjust your withdrawal rate down a bit because it is not going to be growing as aggressively as if you had more stocks in the portfolio. So maybe you would bring down your withdrawal rate per year to 3.5% or 3% Nisa. There isn’t one correct withdrawal rate for everybody. This is simply a target to help you budget your retirement spending. As you get close to retirement, or you move into retirement, I would recommend that you work with a financial advisor who specializes in managing retirement income. They can help you create a plan that factors in market conditions, inflation and your personal goals.

Thanks again, Francis and Nisha for those great questions and speaking of inflation, that’s what I’m covering today. So let me start out with a quick primer on inflation. It is simply a rise in the prices of goods and services over time. You’ve probably heard numbers like during the 1940s in the United States, you could buy a loaf of bread for 15 cents and a new car for less than a thousand dollars in the notes for the show in the money girl [email protected] I’ll include a link to a pretty cool inflation calculator that allows you to adjust any amount for inflation from 1800 to the present. So you can see what stuff costs today versus in the 18 hundreds. The most well-known measure of inflation is the consumer price index or CPI. The CPI reveals changes in retail prices of specific consumer goods, such as food, clothing, and cars.

The index compares the value of the same items each year to calculate the level of inflation for that period. It’s published monthly by the bureau of labor statistics. As inflation causes prices to rise. Every dollar buys a smaller percentage of a good or service. For example, if the inflation rate is 4%, then a $2 loaf of bread will cost $2 and 8 cents in a year from now after inflation, our money simply does not buy the same amount of goods and services it did before. That’s why people fear inflation so much as of June, 2021. The prices of certain products and services have gone up the most since 2009, which was about the last time I podcasted about inflation over the past year or so. The pandemic created some pretty unusual economic conditions. And while the recovery is underway, it’s not happening smoothly or equally across industries.

For instance, car manufacturers are still behind, but restaurants and hotels are poised for a post vaccine. Boom. This summer, the critical question is whether the current inflation rate hike will last or even increase. And how can you protect yourself from getting hurt financially by it? Today’s episode is supported by hello, fresh, hello, fresh delivers fresh pre-measured ingredients for mouthwatering seasonal recipes, right to your door. So you can enjoy cooking and get dinner on the table in 30 minutes or less for even quicker options. Try hello. Fresh is quick and easy meals, 15 to 20 minute dinners or breakfast on the go each week. Choose from 50 options ranging from gourmet style entrees like pork chops with mashed potatoes to a ready to eat super sandwich. I’m in love with hello, fresh meal delivery, because it truly brings fun back into the kitchen. It’s just so exciting to get fresh, colorful veggies out of the box and have clear instructions for how to cook them later in the week.

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Not only do you get amazing deals on pieces that look like new, or even have the tags still on, but you’re reducing your carbon footprint. Recently. I picked up several items for the warm weather, including shorts, Jean skirts, and linen joggers. Everything is super cute in great condition and more than 60% off, what I would have had to pay retail, get the styles you love at a fraction of the price. You’ll look and feel good with thread up and for money girl listeners. Here’s an exclusive offer just for you. Get an extra 30% off your first [email protected] slash money. That’s T H R E D U p.com/money for 30% off your first order thread up.com/money for an extra 30% off today terms apply. So let’s take a step back and talk about what causes inflation in the first place. One factor is increases in the money supply of an economy, consider an imaginary economy where nothing exists except loaves of bread and dollars printed by the government.

When more money is printed and it gets into the hands of consumers, there are more dollars available to buy the same amount of bread that drives up prices that consumers are willing to pay for a limited supply of bread. There are shortages in specific industries right now, such as computer chips and lumber due to manufacturing and delivery delays. The pandemic kept people from working and products from being delivered. However, those supply chain clogs should eventually get removed. Another cause of inflation is wages. When workers command higher salaries due to things like expertise, lack of competition or bargaining power employers generally pass the increased expense along to their customers. In other words, prices of goods and services go up in a labor shortage. And right now we see a labor shortage to boot. However, as more Americans returned to work or move from part-time to full-time jobs, we should see fewer employers scrambling to restaff.

The problem with inflation is that if your savings earn less than the inflation rate, you’re losing purchasing power day by day. And even when you earn higher rates, inflation still eats away at the value of your money. For example, if your certificate of deposit or CD earns 3% and inflation is 2.5% per year, your real interest rate on that investment is 0.5% or 3% minus 2.5% for inflation. So how can you beat or at least minimize the effects of temporary or long-term inflation I’ll review five investments that are designed to protect you from inflation. Number one is treasury inflation, protected securities, or T I P S tips tips are backed by the federal government and pay interest adjusted for inflation as measured by the CPI. If you own tips inside a tax advantage account, such as an IRA, SEP IRA or 401k, you avoid or defer paying tax on your earnings.

A second investment option is municipal inflation linked securities. These securities are issued by various government entities and they pay interest based on the CPI. They’re similar to municipal bonds because they are exempt from federal and most state and local taxes. A third type of investment is corporate inflation linked securities. These investments are sold by companies and they carry more risk and potentially higher returns than government issued investments that yields adjust monthly for changes in the inflation rate. The fourth type are inflation linked certificate of deposits or CDs. These securities are sold by banks and various financial institutions, and they pay an interest rate based on the inflation rate, they are insured by the federal deposit insurance corporation, or MDIC just like your bank checking and savings accounts. And the fifth type of investment is inflation linked savings bonds, or I bonds. These bonds are backed by the federal government and grow with inflation index earnings for up to 30 years, they’re exempt from state and local taxes and you defer paying federal tax until th

So you may be wondering, well, are what’s the best inflation investment strategy for me more financial institutions are marketing inflation, protected securities and funds to investors who believe inflation will continue to rise. The advantage is a guarantee that you’ll receive a return higher than inflation. However, the returns are relatively low compared to other investment options such as stock funds. As I mentioned, companies tend to pass along inflation to their customers as higher prices that can help companies maintain profitability, boost their value and have higher stock prices, allowing stock funds to rise. But inflation is most problematic for those who are nearing or are in retirement. If you’re on a fixed income from investments, a company pension or social security, retirement benefits, you may benefit from owning some inflation protected investments. However, if you’ve got a long investment horizon or many years to go before you plan to retire and begin tapping your nest egg, you really should not change anything about your investing strategy.

If you’re regularly buying one or more diversified funds and a retirement account, like your 401k at work or an IRA that you have on your own, that’s a rock solid approach to keep having a diversified portfolio means you own many that don’t all move in tandem. And when your investments perform differently in different inflationary environments, that allows you to earn more with less risk, which is a tried and true formula for success. Remember that there will always be changes in the financial markets, economy and inflation if prices and wages did not rise from year to year, that would signal an unhealthy economy. We have inflation in most years and a reasonable amount is good for a healthy economy. A final quick and dirty tip is don’t forget about the importance of maintaining emergency savings in the bank. Even though the interest you get is less than the inflation rate, you still need at least three to six months worth of living expenses on hand, no matter what’s going on with the inflation rate.

So I hope that gives you a little bit of context for what’s going on right now. And certainly I’ll, I’ll keep you posted as things change. I hope you’ll stay in touch with me one way is to follow me on Instagram at Laura D. Adams, you might also join my private Facebook group called dominate your dollars. You can send me a quick text to get your invitation to the group. Just text the word dollars. D O L L a R S to the number 3, 3, 4, 4, 4. Also visit Laura D adams.com to sign up for my newsletter and learn more about me, my books and online courses. That’s all for now. I’ll talk to you next week until then here’s to living a richer life. Money girl is produced by the audio wizard, Steve and Ricky Berg with editorial support from Biatta Centura. If you’ve been enjoying the podcast, it would mean the world to me and everyone at quick and dirty.

If you would rate and review the show, it only takes a second. And it means so much to us. And don’t forget, we’ve got backlist episodes and show notes that are always available for [email protected] [inaudible].

If you’ve been hearing a lot of experts talking about whether inflation will rear its ugly head, you might be wondering if you should do something different with your money.

Many economists believe that the recent higher-than-normal prices of goods and services will be temporary. When the economy is fully open, and manufacturing and shipping bottlenecks get cleared, we should see the inflation rate drop to pre-pandemic levels.

However, no matter if inflation in the U.S. is temporary or long-term, it’s wise to consider what it means for your finances. This episode will review what causes inflation and tips to keep it from causing you to lose money now and in the future.

What is inflation?

First, here’s a quick primer on inflation. It’s a rise in the prices of goods and services over time. You’ve probably heard numbers like during the 1940s in the U.S. you could buy a loaf of bread for $0.15 and a new car for less than $1,000!

Here’s a handy inflation calculator that allows you to adjust any amount for inflation from 1800 to the present.

The most well-known measure of inflation is the Consumer Price Index or CPI. The CPI reveals changes in retail prices of specific consumer goods such as food, clothing, and cars. The index compares the value of the same items each year to calculate the level of inflation for that period. It’s published monthly by the Bureau of Labor Statistics.

As inflation causes prices to rise, every dollar buys a smaller percentage of a good or service. For example, if the inflation rate is 4%, then a $2 loaf of bread will cost $2.08 in a year. After inflation, our money doesn’t buy the same amount of goods or services that it did before. That’s why people fear inflation so much.

As of June 2021, the prices of certain products and services have gone up the most since 2009, which was about the last time I wrote about inflation!

Over the past year or so, the pandemic created some unusual economic conditions. And while the recovery is underway, it’s not happening smoothly or equally across industries. For instance, car manufacturers are still behind, but restaurants and hotels are poised for a post-vaccine boom this summer.

The critical question is whether the current inflation rate hike will last or even increase? And how can you protect yourself from getting hurt financially by it?

What causes inflation?

Let’s take a step back and talk about what causes inflation in the first place. One factor is increases in the money supply of an economy.

Consider an imaginary economy where nothing exists except loaves of bread and dollars printed by the government. When more money is printed and gets into the hands of consumers, there are more dollars available to buy the same amount of bread. That drives up prices that consumers are willing to pay for a limited supply of bread.

There are shortages in specific industries, such as computer chips and lumber, due to manufacturing and delivery delays. The pandemic kept people from working and products from being delivered. However, those supply chain clogs should eventually get removed.

Another cause of inflation is wages. When workers command higher salaries due to expertise, lack of competition, or bargaining power, employers generally pass the increased expense to their customers.

In other words, prices of goods and services go up in a labor shortage. And right now, we are in a labor shortage, to boot. However, as more Americans return to work or move from part-time to full-time jobs, we should see fewer employers scrambling to restaff.

5 investments to beat inflation

If your savings earn less than the inflation rate, you’re losing purchasing power day by day. And even when you earn higher rates, inflation still eats away at the value. For example, if your CD earns 3% and inflation is 2.5% per year, your real interest rate is 0.5% (3% – 2.5%).

So, how can you beat, or at least minimize, the effects of temporary or long-term inflation? Here are five investments designed to protect you from inflation:

1. Treasury Inflation-Protected Securities (TIPS)

TIPS are backed by the federal government and pay interest adjusted for inflation as measured by the CPI. If you own TIPS inside a tax-advantaged account, such as an IRASEP-IRA, or 401(k), you avoid or defer paying tax on your earnings.

2. Municipal Inflation-Linked Securities

These securities are issued by various government entities and pay interest based on the CPI. Municipal inflation-linked securities are similar to municipal bonds because they’re exempt from federal and most state and local taxes.

3. Corporate Inflation-Linked Securities

These investments are sold by companies and carry more risk and potentially higher returns than government-issued investments. The yields adjust monthly for changes in the inflation rate.

4. Inflation-Linked Certificates of Deposit (CDs)

These securities are sold by banks and various financial institutions and pay an interest rate based on the inflation rate. They’re insured by the Federal Deposit Insurance Corporation (FDIC), just like your bank checking and savings accounts.

5. Inflation-Linked Savings Bonds (I Bonds)

I bonds are backed by the federal government and grow with inflation-indexed earnings. They’re exempt from state and local taxes, and you defer paying federal tax until the bonds mature or get sold.

What’s the best inflation investment strategy?

More financial institutions are marketing inflation-protected securities and funds to investors who believe inflation will continue to rise. The advantage is a guarantee that you’ll receive a return higher than inflation. However, the returns are relatively low compared to other options, such as stock funds.

As I mentioned, companies tend to pass along inflation to their customers as higher prices. That can help companies maintain profitability, boost their value, and have higher stock prices, allowing stock funds to rise.

Inflation is most problematic for those who are nearing or are in retirement. If you’re on a fixed income from investments, a company pension, or Social Security retirement benefits, you may benefit from owning some inflation-protected investments.

However, if you have a long investment horizon or many years to go before you plan to retire and begin tapping your nest egg, you really shouldn’t change your investing strategy. If you’re regularly buying one or more diversified funds in a retirement account, such as a 401(k) or IRA, that’s a rock-solid approach to keep.

Having a diversified portfolio means you own many investments that don’t all move in tandem. When your investments perform differently in different inflationary environments, that allows you to earn more with less risk, which is a tried-and-true formula for success.

Remember that there will always be changes in the financial markets, economy, and inflation. If prices and wages didn’t rise from year to year, that would signal an unhealthy economy. We have inflation in most years, and a reasonable amount is good for a healthy economy.

A final quick and dirty tip: Don’t forget about the importance of maintaining emergency savings in the bank. Even though the interest you get is less than the inflation rate, you still need at least three to six months’ worth of living expenses on hand no matter what’s going on with the inflation rate.

This article originally appeared on Quick and Dirty Tips

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About the Author

Laura Adams, Quick and Dirty Tips

Laura Adams, Quick and Dirty Tips

Laura Adams is an award-winning author of multiple books, including Money Girl’s Smart Moves to Grow Rich. Her newest title, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, is an Amazon No. 1 New Release. Laura’s been the writer and host of the popular Money Girl Podcast, a top weekly audio show in Apple Podcasts, since 2008. She’s a frequent source for the national media and has been featured on most major news outlets including NBC, CBS, ABC FOX, Bloomberg, NPR, The New York Times, The Wall Street Journal, The Washington Post, Money, Time, Kiplinger’s, USA Today, U.S News, Huffington Post, Marketplace, Forbes, Fortune, Consumer Reports, MSN, and many other radio, print, and online publications. Millions of readers and listeners benefit from her practical financial advice. Her mission is to empower consumers to live richer lives through her podcasting, speaking, spokesperson, teaching, and advocacy work. Laura received an MBA from the University of Florida. Visit LauraDAdams.com to learn more and connect with her.

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