Inflation is the invisible concept that all goods and services get more expensive over time.
We see this with gas prices, property taxes, groceries, home and vehicle insurances, utilities and even your favorite coffee.
The Bank of Canada targets inflation rates of 2% per year. It tries to control inflation by raising or lowering interest rates based on market data.
In other words, life gets more expensive by 2% every year.
Inflation is important because it puts pressure on your paycheck and it puts pressure on your investments. If you aren’t consistently getting a 2% raise at your job, you’re making less money each year.
If you aren’t consistently earning 2% on your investments, you’re actually losing money.
All because of inflation.
The value of a $1,000 deteriorates over time.
|Year 1||Year 2||Year 3||Year 4||Year 5|
And to combat inflation you must avoid the common mistakes:
- Choosing investments earning less than 2% such as a term deposit or Guaranteed Investment Certificate (GIC).
- Not saving enough money for retirement because they haven’t accounted for inflation.
- Buying houses too rich for their income and then getting squeezed by inflation on property taxes and utilities.
The solution to overcoming inflation is to have an investment portfolio that is growth focused. That means a portfolio that exceeds inflation rates now and provides you an inflation protected income in retirement.
Do you want to protect your money against inflation? We are happy to discuss the possible ways you can do that on a call.