ETFs Archives

Inflation vs. Your Savings

5 November, 202424 October, 2024 Updated on24 October, 2024 Economy, Finance, Investing

Inflation is a slow force working against your financial goals. It can quietly erode the purchasing power of your money over time. While it’s tempting to see cash as a safe haven, failing to factor in inflation could mean your savings are worth less when you need them most. So, let’s dive into the showdown between inflation and your savings, and explore strategies to fight back! Inflation’s Erosion of Cash Returns The Reserve Bank of Australia (RBA) defines inflation as “an increase in the level of prices of the goods and services that households typically buy”. When inflation goes up, the value of each dollar you own decreases, meaning you can buy less with the same amount of money. This becomes a real concern for investors who rely on cash or low-risk investments like term deposits, where returns may not keep up with inflation. For instance, if you’ve placed your money in a term deposit earning 5% interest, but inflation is running at 6%, you’re effectively losing 1% of purchasing power. This is what’s known as the real return – the return on your investment after adjusting for inflation. A return of 5% may look good on paper, but in real terms it means you’re going backwards. Long-Term Investment Strategies So, how can you prevent inflation from chipping away at your savings? One effective approach is to adopt a diversified investment strategy. Diversification involves spreading your investments across various asset classes such as shares, property, bonds, and international assets, rather than keeping all your money in cash or low-risk products. Equities, for example, have historically outpaced inflation over the long term. While shares can be volatile in the short run, their potential for higher returns helps them beat inflation over time. Property investments also have a history of delivering inflation-beating returns, as the value of real estate typically rises along with inflation. Exchange Traded Funds (ETF) may be a useful way to diversify your investments that are both simple and low-cost. A well-diversified portfolio ensures that you’re not overexposed to any one asset class. Instead, you benefit from the potential growth of various sectors, reducing your overall risk and improving your chances of keeping pace with or even outpacing inflation. Practical Advice for Investors Investing during inflationary times can feel overwhelming, but there are several steps you can take to safeguard your wealth: The Bottom Line Inflation can have a serious impact on the value of your savings, particularly if you rely on cash or low-risk investments. Over time, even a modest inflation rate can significantly reduce your purchasing power. By diversifying your investments, staying informed, and seeking professional advice, you can set yourself up to win in the showdown between inflation and your money. The information provided in this article is general in nature only and does not constitute personal financial advice. 

The Wealth of Gold: Investing in a timeless asset

26 April, 202323 April, 2023 Updated on23 April, 2023 Economy, Investing

As investors navigate through unpredictable and volatile economic times, it is essential to consider asset classes that can provide a level of stability and protection against market fluctuations. One such asset that has stood the test of time is gold. For centuries, gold has been a symbol of wealth and has played an essential role in the global economy. Why Investors Turn to Gold During Volatile Times Gold has long been considered a safe haven asset, as it has maintained its value throughout history. When the stock market experiences downturns or geopolitical tensions escalate, investors often flock to gold as a way to protect their portfolios against market fluctuations. The price of gold typically moves in the opposite direction of the stock market, making it a valuable hedge against economic uncertainty. Moreover, gold is not subject to the same risks as other investments such as bonds or stocks, making it a reliable store of value. Benefits and Consequences of Investing in Gold The primary benefit of investing in gold is its ability to provide a level of diversification to an investment portfolio. By including gold in a portfolio, investors can reduce their exposure to other assets, thus lowering overall risk. Additionally, gold is a tangible asset that investors can physically hold, making it an appealing option for those who prefer assets they can see and touch. However, investing in gold also comes with some drawbacks. The most significant risk associated with investing in gold is its volatility. While gold has maintained its value over time, its price can still fluctuate significantly over shorter periods. Furthermore, investing in gold does not provide a source of income, as it does not pay dividends or interest. Investors looking for regular income streams should consider other investments, such as bonds or stocks that offer dividend payouts. Interesting Facts About Gold Gold has been used as a form of currency for thousands of years. In ancient times, individuals and countries stockpiled gold as a way to preserve their wealth. For instance, during the California Gold Rush in the mid-1800s, the US government established the first national gold reserve to help stabilize the economy. Similarly, during World War II, countries like the US and the UK stockpiled gold to finance their war efforts. Getting Exposure to Gold Investors have several options to get exposure to gold. The most common way is to invest in physical gold, such as gold coins or bars. However, buying physical gold can be expensive, and investors also need to pay for storage and insurance costs. An alternative option is to invest in gold exchange-traded funds (ETFs), which track the price of gold and offer investors an easy way to invest in gold without the hassle of buying physical gold. Finally, investors can also invest in gold mining stocks, which provide exposure to the gold industry and can potentially offer higher returns than investing in physical gold or gold ETFs. While investing in gold can offer protection against market fluctuations and diversify an investment portfolio, it is crucial for investors to carefully consider the risks and benefits associated with this asset class. By weighing the pros and cons and assessing how gold aligns with their investment objectives, investors can make informed decisions about whether to include this timeless asset in their investment strategy. The information provided in this article is general in nature only and does not constitute personal financial advice.