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More and more Americans are feeling the pinch of rising inflation. A recent Pew Research Center survey found that inflation is Americans' top concern, followed by health care affordability, violent crime and gun violence.
The February consumer price index (CPI), which measures the cost of everyday essentials, showed that U.S. inflation rose 6.0% over the past 12 months. With that in mind, here are a few steps that you can take right now to protect your money from rising inflation.
Inflation is the gradual increase in the prices of goods and services throughout the economy. It is measured by calculating the percentage change in a price index over a period of time, typically over the prior 12 months.
When inflation rises, it can cause headaches for consumers and businesses. For consumers, it can lead to higher prices and decreased purchasing power. For businesses, it can lead to lower profits and increased costs.
When inflation is high, you may find that your income doesn't go as far as it used to. But there are steps you can take now to hedge against rising prices.
If you have your money stashed in a checking or basic savings account -- or worse, at home -- inflation erodes the value over time.
You can reduce your losses by moving the money you can't risk investing, like your emergency fund or house down payment savings, to a high-yield savings account.
Even the best high-yield savings accounts' annual percentage yield won't match the inflation rate. But your money will earn a higher yield than other bank accounts. According to the FDIC, the average savings account APY was 0.37% as of March 20, based on the latest data available.
But with a high-yield savings account, APYs are as high as 4.29%. You can check out our picks for the best high-yield savings accounts to find an account.
There are two popular types of treasury bonds that are good investments for individuals who are worried about inflation:
You can buy both types of treasury bond at TreasuryDirect.gov.
Inflation causes your money to be worth less over time. For that reason, it makes sense to keep the money you may need, like an emergency fund, in a liquid and easily accessible savings account. Other funds should be invested in the stock market to grow your money.
While the stock market may experience dips, historically, it's delivered returns that have beat inflation. Over the past 95 years, the average stock market returns clocked 12.3% per year.
You can invest through a retirement account like a 401(k) or individual retirement account (IRA). You can also open a taxable brokerage account. If you aren't sure where to start, you can use investment apps that help you choose investments and manage your portfolio.
If you invest in the stock market, it's important not to invest in only a handful of stocks. If a company fails or its price drops, you could lose substantial money.
Portfolio diversification lowers the level of risk. If one company performs poorly, the performance of the others can offset its losses, minimizing the impact on your money.
Fidelity Investments, a multinational company that serves over 40 million investors, recommends these the following for a diversified portfolio:
If you already have savings in a high-yield savings account, invest in the stock market and have a diversified portfolio, you may want to consider alternative investments to hedge against inflation. Popular alternative investment options include:
As inflation rates rise, it's a good idea to review your finances and see if any improvements can be made to protect your money. Investing in stocks, bonds and other traditional investment vehicles can help you counter rising inflation.
If you want to explore alternative investments, several options are available. Whichever route you choose, it's important to diversify your portfolio to minimize the risk of losing money if one investment performs poorly.
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