Inflation has reached new heights since the coronavirus outbreak. As inflation spiked, banks and financial institutions raised interest rates as a way to stem inflationary pressures. According to CNBC, although inflation will fall in 2024, interest rates will remain high.
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According to the Associated Press, the Fed intends to lower interest rates further this year, but only if it believes the public can safely reach its 2% inflation target. “We don't want to have a situation where we had good inflation data for six months last year and it turns out that it wasn't an accurate picture of underlying inflation,” Fed Chairman Jerome Powell said. said Federal Reserve Chairman Jerome Powell at the outset. march.
However, lower interest rates affect both savings and investment.
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savings and investment
Inflation ultimately leads to higher interest rates for borrowing money. This also means you'll earn a higher interest rate on the money you save. Keeping your cash in a high-yield savings account provides a minimal hedge against inflation, but this risk-free method can result in lower yields.
Investing may involve greater risk, but greater risk usually also yields greater reward. The stock market has historically offered substantial returns if you hold fundamentally sound investments over the long term. Alyssa Krasner Mays, founder of investment advisory firm Amplify My Wealth, was quoted in Fortune magazine as saying: In some cases, there are also risks that are correlated with the potential benefits. ”
If you are young and comfortable taking more risks, it may be wise to invest your cash in the stock market to grow your money for the future.
Impact of falling inflation on investment
If you choose to keep your funds invested in the market, changes in inflation may adversely affect the value of your investments. However, the short-term impact of inflation on investment value can be much smaller than the long-term growth potential. In any case, it's important to diversify (diversify) your assets and make sure you're happy with the level of risk you're taking.
Understand your financial priorities
When deciding whether saving or investing is best for you, you need to consider your financial priorities.
Are you looking to save for a down payment on a home or for a new car purchase in the near future? If so, putting your money in a risk-free, high-yield savings account may be the right choice.
Are you looking to grow your money over time to reach your goal of fully retiring at age 60? Whether you're worried about the short-term effects of inflation and intend to maintain your investment portfolio. For example, it may be wiser to invest your cash now rather than keeping it in a savings account.
Identifying both short-term and short-term goals can help you strike the right balance between saving and investing, especially when inflation rates are rising.
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