How worried should I be about inflation?

Great and timely question.

Inflation is the increase in prices and fall of the value of the dollar as a result of an increasing money supply. Inflation impacts everyone and is really a hidden tax. When the government spends and runs deficits, they usually print money to cover their liabilities, ultimately resulting in inflation. When the impact of inflation hits us in the form of rising prices and less purchasing power, we are receiving the hidden tax. To put a scary number on it, the dollar has lost 96% of its purchasing power since 1913.

How Worried To Be

Your question was about how worried you should be and I think you should be worried. We’ve had low inflation for so long that people who didn’t live through the late 70s and early 80s don’t know how much high inflation can hurt. I don’t think we’ll see anything as bad as the 70s and 80s, but we will have relatively high inflation for the next couple of years, certainly 2022 at the least.

High inflation means any money kept in cash is losing purchasing power at a faster rate than in a low inflation environment. It’s good to have some money in cash, but I wouldn’t keep more than you need there. During times of inflation, typically precious metals such as gold and silver do well, commodities such as oil, treasury inflation protected securities (TIPS), and we can likely add Bitcoin to the list. For those with the means, rental real estate is also considered an inflation hedge. I wouldn’t completely change your existing investment strategy, but be aware of the risks of having too much in cash and adjust accordingly.

If you don’t have much in savings or investments your main concern is the higher prices that come with inflation. Closely manage your spending and delay unnecessary purchases which may become cheaper after inflation subsides.

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