“If the current annual inflation rate is less than 3 percent, why do my expenses feel 10 percent higher than last year?”
It’s a common question—and it underscores why understanding inflation matters when protecting and growing your wealth.
What Is Inflation?
Inflation is simply the rise in the average level of prices over time. Each month, the Bureau of Labor Statistics publishes the Consumer Price Index (CPI), which tracks changes in categories such as food, housing, apparel, transportation, healthcare, and other essential items.
While the CPI is the most widely recognized measure of inflation, it doesn’t always accurately reflect individual experiences. Your personal “basket of goods” may look very different from the one measured by the CPI.
How the CPI Measures Up
The CPI rose 2.4% in the 12 months ending September 2024. But dig deeper, and you’ll see a wide range of changes. For example, transportation services alone increased 8.5% during that same period.
This variance helps explain why your costs may feel out of sync with the “headline” inflation number—because your spending habits don’t necessarily mirror the averages used in national reports.
The Impact of Inflation on Investments
Inflation doesn’t just affect your grocery bill—it directly impacts wealth and investments in three key ways:
- Reduced Real Returns
If an investment earns 6% in a year while inflation runs at 1.5%, your real return is just 4.5%. Taxes can further reduce this figure. - Declining Purchasing Power
As prices rise, each dollar buys less, putting long-term financial goals at risk. - Federal Reserve Policy Shifts
To control inflation, the Fed may adjust interest rates and the money supply, moves that can ripple across markets and asset values.
Navigating Inflation with Confidence
When inflation is modest, it’s easy to overlook its gradual erosion of wealth. When it’s high, the temptation may be to make sweeping portfolio changes. Neither extreme serves investors well.
The better approach? A disciplined, forward-looking investment strategy—built with inflation in mind. Working with a trusted financial advisor helps ensure your portfolio is positioned not only to withstand inflation but also to continue growing in real, after-inflation terms.
Final Thought
Inflation is an inevitable part of the financial landscape, but with the proper planning, its impact on your long-term wealth can be managed. At Peak American Investment Advisors, we help families and individuals take a proactive, strategic approach to preserving and growing their wealth—no matter how the economic winds shift.
Disclosure:
The information provided in this blog is for educational and informational purposes only and should not be construed as investment, tax, or legal advice. Peak American Investment Advisors, LLC (“Peak American”) is a registered investment adviser. Registration does not imply a certain level of skill or training. The views expressed are those of the author(s) at the time of publication and are subject to change without notice. Any references to specific investments, strategies, or financial concepts are for illustrative purposes only and may not be suitable for your individual circumstances.
Past performance is not indicative of future results. All investments involve risk, including the possible loss of principal. You should not act or rely on any information in this blog without first seeking the advice of a qualified financial, tax, and/or legal professional who is familiar with your personal situation.
Disclosure:
The information provided in this blog is for educational and informational purposes only and should not be construed as investment, tax, or legal advice. Peak American Investment Advisors, LLC (“Peak American”) is a registered investment adviser. Registration does not imply a certain level of skill or training. The views expressed are those of the author(s) at the time of publication and are subject to change without notice. Any references to specific investments, strategies, or financial concepts are for illustrative purposes only and may not be suitable for your individual circumstances.
Past performance is not indicative of future results. All investments involve risk, including the possible loss of principal. You should not act or rely on any information in this blog without first seeking the advice of a qualified financial, tax, and/or legal professional who is familiar with your personal situation.
For more information about Peak American’s services, please review our Form ADV and other disclosures, which are available upon request.
Peak American Investment Advisors
2400 Dallas Parkway, Suite 100
Plano, Texas 75093