By Melissa Brock
Inflation affects your portfolio right here, right now. You probably already know about the dark side of inflation and how it affects your portfolio. But have you really taken the steps to combat it? Let’s find out.
What Is Inflation?
Inflation measures the rising cost of goods and services in a society. The gradual rise in prices results in a slow-motion decline of how much you can purchase with $1 over time.Inflation might not seem like it makes a difference from one year to the next. However, over many years and decades, it can really make a difference how much (or how little) you can actually purchase with your money.
How You Know Inflation Is at Work
Some level of inflation is normal, as long as it’s around 2 percent, and some even signals that the economy is healthy.- Utility stock prices: Typically pretty stable in share prices and dividends, utility stocks that experience a long-term sell-off can result in an upward tick in inflation.
- Raw material prices: When lumber rises, beware. An increase in raw material commodities can signal the bellwether for inflation.
- Metals: You’ve probably heard that people often use gold and silver as an inflation hedge. Gold typically rises when the dollar falls, but a rise in gold prices can indicate inflation.
- Wages: It happens that wages push inflation when wages increase and businesses must charge more for their products and services to pay for higher wages.
