In simple terms, inflation signifies a rise in the price of goods and services, meaning you pay more for every purchase you make.
Rising inflation has a range of impacts, particularly on cost of living – as we are all feeling at the supermarket for example. Here we look at the particular effect it has on investors.
What will be the effect on investors?
A rise in inflation affects investment markets negatively due to higher interest rates, and volatility across the economy, especially when there is uncertainty around share prices.
For what’s known as ‘mum and dad’ investors, rising interest rates mean paying more interest on their home loan, which reduces their disposable income and, in turn reduces their capacity to invest.
For retirees, an increase in the price of goods and services during a time of market volatility can lead to having to sell more of their investment assets (potentially at a loss or reduced profit).
How can you prepare for a rise in inflation?
• Look at your personal cashflow situation to understand where your money is going
• Consider fixing at least part your home loan to limit your exposure to rising interest rates
• Consider if you truly need to take on new debt when interest rates are likely to increase for personal loans?
• For investment purposes, consider having exposure in well-established companies rather than riskier stock.
If the thought of rising inflation leaves you feeling unsettled, be sure to talk to our team at Acumon Accountants & Business Advisors. Acumon will review your financial position and assist to identify strategies to help you outpace inflation.
Give us a call on 📞 (02) 4931 1100 to make an appointment, we have three conveniently located offices.
📍 7/19 Mitchell Drive, East Maitland NSW 2323
📍 Suite 2/49 Yambo Street, Morisset NSW 2264
📍 49 Nelson St, Wallsend NSW 2287