How Inflation Affects Your Investments And Finances ?

Inflation may appear to be a threat to a well-functioning economy, but most economists agree that inflation is a necessary evil. High levels of inflation are worrisome for governments, but a certain degree of inflation may be required to stimulate the economy and move towards economic growth.

This poses the question, how do rising prices benefit the economy? Those economies that are coming out of a recessionary phase can benefit from slight increases in inflation. As inflation erodes the value of money, consumers are compelled to spend more to obtain the same amount of goods.

Fixed income instruments are used by investors who like a secured stream of income in uncertain times. This includes securities like government bonds and CDs, which have a fixed set of interest payments associated with them. Retirement investments must be made in line with the expectation of a future increase in prices.

As is the case with any investment return, inflation would eat away the returns on retirement plans if inflationary pressures are not factored into their calculation.

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