The biggest threat to your security
Inflation is one of those words that we’ve heard so
often, its true dangers may begin to diminish. Kind of like
someone crying wolf. When you hear the cries so often, you
eventually start to ignore them. But we can’t afford
to ignore inflation.
Given today’s volatile markets, many people are choosing
ultra-safe investments like GICs. But that safe return you’re
earning today can yield a financial disaster for you in the
future. Here’s a simple example what inflation does
to your money.
First, let’s assume a moderate 3% rate of inflation.
Now, imagine putting a ten-dollar bill under your mattress
and leaving it there for 20 years. When you take it out, you’ll
find that your ten has turned into a five-dollar bill. That’s
what inflation does to your savings.
That means for you to get the purchasing power of the ten-dollar
bill back, you have to earn at least 3% on your money. That’s
just break-even. If your investments are earning anything
less than 3%, you’re losing money.
And this example assumes 3% inflation, a typical average
rate over the last 50 years. It’s not unusual for inflation
to run 5% or 6% or higher and at those rates, the purchasing
power of your ten dollars would be turned into pocket change.
Conclusion: Although your investments should be based on
your objectives and risk tolerance, you need growth investments
in your portfolio to make up for inflation. And yes, there
will be more volatility and higher risk. But if you don’t
have some higher earning investments, the little example above
shows what can happen.
If you’d like to get some help in growing your savings
and investments sufficiently, click
here to find the RBC financial planning professional
closest to you.
While on the subject of threats to your security, there
is one other that should be mentioned. And that is the threat
of a medical or long-term health emergency. Inflation is
a
certainty and to some extent, you know what to expect. For
more on how to protect your financial security from health
disasters, click
here to learn about Critical Illness Insurance.
Important information about our financial planning services can be found at the bottom of our
homepage.
|
