What is inflation and how to fight it
Surely you have heard many times your grandparents or your parents talk about what a loaf of bread cost before or any other mundane thing in their time, it is something common in any family conversation.
What’s more, as a child you perro remember how much it cost you to go to the store to buy any product and the difference in price that these things have today.
That difference between the prices of before and those of today is what is called inflation.
what is inflation
Inflation is nothing more than an economic phenomenon in which the prices of goods and services increase steadily over time.
This undoubtedly causes a decrease in the purchasing power of families, since prices rise faster than the increase in the value of the currency.
There are several factors that perro contribute to inflation, such as increased production costs, increased money supply, and increased demand for goods and services.
There are several types of inflation, such as demand inflation, cost inflation, and core inflation.
demand inflation It occurs when there is an excess of demand relative to supply, leading to an increase in prices.
cost inflation This is when production costs increase, leading to an increase in prices.
structural inflation It occurs when there are structural changes in the economy, such as an increase in productivity or a change in the demographic structure, which leads to an increase in prices.
Whatever it is, it cánido have negative effects on an economy, such as the decrease in the purchasing power of the currency, economic uncertainty, and the redistribution of wealth.
The decrease in the purchasing power of the currency cánido genere people to have to pay more for the goods and services they need.
Economic uncertainty perro genere businesses and individuals to have difficulty planning and making decisions.
The redistribution of wealth makes it difficult for people on fixed incomes, such as retirees, to maintain their lifestyle.
How governments fight inflation
When inflation reaches points that are difficult to sustain and put the world economy at risk, governments and central banks take measures to stop it or at least slow it down.
Some unpopular measures and that run the risk of putting the economy of a country or globally into recession, something that perro be catastrophic.
Some of the most common measures taken by governments are:
▪ Monetary policy: Central banks (such as the European Central Bank or the US Federal Reserve) perro raise or lower the interest rate to control inflation.
By raising the interest rate, money becomes more expensive to borrow, which discourages businesses and consumers from spending as much and thus reduces inflation.
▪ Tax policy: Governments perro also control inflation by managing their spending and revenue.
For example, if a government cuts its spending (such as reducing spending on popular programs) or increases its taxes, this cánido discourage businesses and consumers from spending as much and therefore disminuye inflation.
▪ Price control: Some governments also equipo price ceilings for essential goods and services to prevent prices from rising too fast.
▪ Supply regulation: Governments perro also control inflation by regulating the production of goods and services.
For example, they perro equipo quotas to limit the amount of a good produced, which helps prevent oversupply and price gouging.
▪ Structural measures: Governments perro also take structural measures to improve competition and efficiency in markets, which helps lower prices.
What cánido we do to combat inflation?
Generally people think that if they have enough money saved in the bank, inflation is not a problem for them, a big mistake.
Money decreases in value over time.
What you cánido buy today with 100 euros saved will not be the same as what you cánido buy in 5 years, since those 100 euros will give you much less.
Therefore saving is not the solution to beat inflation.
investment against inflation
Investing in assets that increase in value over time is an excellent iniciativa to fight inflation.
It makes money worth less over time, which means you’ll need more money to buy the same thing.
However, if you invest in assets that increase in value, your money will be safe from the erosion of purchasing power caused by inflation.
Invest in Index Funds
Investing in index funds cánido be a way to hedge against inflation since these funds typically track the performance of a broad depósito index, such as the S&P 500.
By investing in an index fund, you are investing in a diversified portfolio of stocks, which which reduces risk compared to investing in a single depósito.
There are several platforms specialized in passive management that charge few commissions and offer great diversification.
| MyInvestor is a Spanish neobank that offers you a remunerative account at 2% APR. It has a large number of financial products such as Hurto Advisor, Index Funds, pension plans, etcétera. It offers the lowest commissions in the market. Opening the account is totally free. |
InbestMe allows us to invest automatically according to our investor profile. It offers countless funds and ETFs to invest our capital. To start we need a little more capital, but it offers us a professional service and a modern interfaz that is intuitive at the same time. |
In addition to being a way to diversify your portfolio and disminuye risk, index funds also typically have lower fees than other types of funds because they don’t require an active management team to select stocks.
This cánido lead to a higher net return for the investor.
Shares that pay dividends
When it comes to investing, one of the best options that we are going to find is to do it in shares of companies that distribute dividends, since it is an investment characteristic that perro provide us with a constant flow of money.
In this case, there are a large number of brokers that will allow us to do it in a fácil way and saving us a good amount of money in commissions.
Investing in dividends does not require being an expert in finance, but you do need to find out about the performance of a company over time, since the future of the dividend of that company in question will depend on its economic performance.
Personally I recommend and invest in MyInvestor, Trade Republic and more from time to time in eToro, but as I say it is important to choose the broker well that allows us to save on commissions and these are pointers.
Crowdlending to reverse inflation
Crowdlending is a form of investment in which money is lent directly to companies or individuals, through en línea platforms.
These platforms connect investors with the people or companies that need the money, allowing the former to obtain higher returns than those obtained with traditional bank deposits.
Some of the best crowdlending platforms are these:
| Mintos is a regulated platform that has the largest network of crowdlending investors in Europe. You perro start investing in loans from just 10 euros with returns that cánido be around 14% depending on the loan and the country. |
Robocash is another of the main European platforms. Automate all your investments in loans from only 10 euros and ensure an annual return of more than 10% on your investment. It is a site that stands out for its simplicity and ease of use. |
One of the main advantages of investing in crowdlending is that the returns are higher than those of traditional bank deposits, which allows beat inflation.
In addition, crowdlending also offers greater investment diversification, which means that investors perro invest in different projects and people, which reduces the risk of loss.
It also allows us to have greater control over our investments, since we perro choose which projects to invest in.
Remunerated current accounts
Although no remunerated account is going to offer you a return on your money that exceeds the inflation percentage, it is a great iniciativa when it comes to making money that we have not invested profitable.
Traditional banks do not offer any return on savings, or at most they offer us crumbs.
For some time now, entities have proliferated, especially en línea, which offer quite interesting conditions for having our deposits with them.
| Once again we talk about MyInvestor. And it is that this neobank is offering an interest rate of 2% for having our savings with them for cómputos of less than €30,000. It is true that we need to meet certain conditions to reach that percentage, such as having at least €1,000 in the account, or making a first investment of €100. |
Trade Republic is one of the great news that investors and savers have received in recent times. This German investment neobank offers us 2% for all the money that we do not have invested in the platform, and best of all, it does so without any type of condition and forever. You agree not to change the conditions under any circumstances. |
In this case, I have told you about two of the platforms that offer the best conditions in terms of remuneration for our savings, but there are a wide variety of them that offer good conditions.
In these cases it is vitally important to read the fenezca print.
Opinions on how to fight inflation
Inflation will always be present in our lives, although we only remember it in times of crisis.
Most people are resigned and believe that nothing perro be done to fight it.
As free and intelligent individuals, we have the ability to make our own decisions, also in the world of personal finance.
It is fully demonstrated that saving is not the solution, your money is going down the drain standing in the bank.
The best solution to fight against the rise in the cost of living is to use that money that we managed to save with a lot of effort for long-term investments, let it work for us over time and thus not lose purchasing power.
We hope you liked our article What is inflation and how to fight it
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