Inflation is the word of the day among economists right now. In fact, it doesn’t matter if you’re in Poland, the UK, America, or Australia, inflation is a hot topic. A report published by the Economic Analysis and Research Department of the National Bank of Poland put the country’s inflation rate at 10.8% in 2022. For context, inflation was just 1.8% back in January 2018. That’s a significant increase and one that means your money is losing value more rapidly now than it was back then. The upshot of this is that you need to find ways to offset or, at least mitigate, the impact of rising inflation.
We’re Always Battling Inflation
Now, before you assess some of the ways to manage your money more effectively, you need to know what inflation means. The simple way to define inflation is a drop in purchasing power over time. For example, 550 zloty in 1992 could get you more groceries than it would in 2022. That doesn’t mean 550 zloty is less money. It means that it has less purchasing power i.e. you can’t buy as much with it as you could before.
Inflation is always happening. However, it becomes a problem when interest rates and wages aren’t increasing at the same rate. This happens from time to time and, in 2022, inflation is increasing faster than interest rates and wages. Because of this, it’s financially prudent to mitigate the impact of inflation. But nothing in the financial world is guaranteed. In other words, you can’t say that doing X will always help you beat inflation and preserve the purchasing power of your savings.
Investing Can be a Way of Beating Inflation
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Having said that, there are mechanisms that can help you manage the effects of inflation. One of those mechanisms is investing in stocks. Again, investing in stocks isn’t guaranteed to help you mitigate inflation or make a profit. However, when inflation is up to 10% and interest rates are less than 1%, investing may be a better option than keeping money in a savings account. Why is it better? When interest rates can’t beat inflation, the purchasing power of your savings is decreasing. Thus, your savings are losing value.
Investing in stocks has the potential to offer greater returns than interest you receive on savings. For example, Apple stock returned 35% in 2021. That means an investor in Apple got more value by investing in Apple than if they’d kept their money in a savings account. Investing in stocks isn’t without its risks. Indeed, when you learn how to invest in stocks, you’ll see that losing money is a real possibility. However, with the right platform and products, there are opportunities to make profits and these profits can help you mitigate inflation.
Understand Stocks Before You Invest
Assuming you’re willing to move money from a savings account to an investment account, you need to know the basics. Some things you need to consider before buying your first shares are the amount you’re going to invest, how long you want to invest for, the stocks you’re going to buy, and the software you want to use. This is why modern online investment platforms are designed for novices and professionals, to help investors get to grips with the basics and become more knowledgeable.
They offer research hubs, access to fractional shares, tax-efficient products such as ISAs, and general investment accounts. You need to understand and assess all of these things before you make an investment. There are differences between these products that would make one type more suitable than another in terms of factors like costs. Some accounts, such as ISAs, have a fee per month but with no charge per trade, while general investment accounts are free with small charges per trade.
You should never buy stocks without understanding what you’re getting into, and the risks involved. As long as you understand the market, buying stocks can be used to beat inflation. It’s not guaranteed. However, when interest rates are low and inflation is high, it could be worth putting your money into stocks, rather than leaving it in a savings account.