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Inflation is at an 18-year high. Here’s how to protect your savings

(Karolina Grabowska/Pexels)

On Wednesday, Statistics Canada announced that the inflation rate in Canada hit an 18-year high of 4.4% in September. Rising prices in transport, shelter, and food were attributed to the staggering statistic.

Although experts were expecting the rate of inflation to be high, the results exceeded expectations. The cause of the rising rate of inflation across the globe is the pandemic and its significant impact on the economy’s supply and demand.

So what exactly is inflation? Whether it’s the steadily rising price of movie tickets, groceries, or real estate, by definition, inflation is the rate of increase in prices over a given period of time. Although prices typically rise, they can also go down, which is called deflation. An example of deflation is when the US housing market crashed following the 2008 Financial Crisis.

Although a population’s income levels also increase over time to catch up with rising prices,  how and where the income is stored puts those at risk of the impact of inflation. This happens when the interest that is being earned in a savings or checking account is lower than the rate of inflation, therefore making investors lose money. 

Luckily, though, there are ways for those with savings to invest their money which can protect them against the risk of inflation—including Treasury Inflation-Protected Securities (TIPS), government Series I bonds, and precious metals, and the latest financial craze, cryptocurrency.

One of the smartest ways for consumers to make sure their savings don’t depreciate in value over time is to allocate funds towards an investment. By investing in low-risk stock investments, investors’ money can gain value over time, in turn making them immune towards the negative effects of inflation.

The types of investments consumers want to invest in to safeguard their income depend on their risk tolerance. One example of an investment that is suitable for retirees and immune to the impacts of inflation are Treasury Inflation-Protected Securities (TIPS). This particular type of investment adjusts the interest investors are paid based on changes to the Consumer Price Index (CPI). 

The CPI is the most popular way to measure inflation across the world and tracks the prices of a variety of consumer goods and services like transport, medical care, and housing. Both the US and Canadian government estimate this data and publish it monthly.

In addition to TIPS, investors looking for an inflation-proof low-risk investment can opt for a Series I Bond, which is a bond issued by the US government that gains interest but is non-marketable, meaning it cannot be bought or sold in secondary markets. Series I Bonds are considered low-risk and protect investors against inflation as they offer investors both a return but also protection from inflation on their purchasing power.

TIPS and inflation-proof bonds aren’t the only way to safeguard your savings from inflation. Certain commodities are also excellent investment choices. Although there are many debates about whether gold is still a reliable hedge against inflation, the metal has been a long-standing favourite amongst risk-averse investors for this purpose.

One of the most cutting-edge types of technology that has taken the world by storm, cryptocurrency is a popular defence against inflation. This is due to its long-term potential returns and immunity to centralized banks. Although it has experienced much volatility of late, Bitcoin is a favourite amongst long term investors who are looking for long term rewards that will likely beat the impacts of inflation.

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