4 of 4

Write now Article Tools

Picking a good investment fund to protect against inflation is not hard. First let's define what inflation is and why its something to be protected against.

Everyone has listened to a grandparent say something along the lines of, "Back when I was young, a loaf of bread only cost a nickel!" or "I bought my first house with your grandma for ten dollars!" This is because as time goes on, prices for goods and services go up. The value of a dollar goes down each passing year. This phenomenon is know as inflation. It's the reason why you want to invest your money, and not just leave it in a box under the bed. If you were to do that, your money would be loosing value each year. Inflation is an inevitable aspect of dealing with money - there is no way to avoid it, but you can protect yourself against it.

Inflation is measured as a percent. So if you hear that inflation is running 2% last year, that means what you can buy for a dollar decreased by 2% last year. In order to "stay ahead" of inflation, you would need to pick an investment that earned more than 2% (in this example).

So what kind of investments can protect you from inflation eating in to the value of your money? Just about anything. Depending on what level of risk you are willing to take with your money, you could invest in anything from very safe money certificates of deposit at a back (which are insured) to very risky stocks.

In order to be protected against inflation, your investment needs to average a return greater than the current rate of inflation. With inflation running at very low levels right now, your range of investment options is quite large if your only goal is to just stay even with inflation rates.

On the very safe end of the investment spectrum are Certificates of Deposit and Money Markets. These are safe places to put your money, but don't expect them to return much more than the very minimum to keep up with inflation. Some banks even offer standard saving accounts which earn a minimal amount of interest. As long as inflation isn't high, this might be a sufficient option.

If you are willing to incur a bit more risk, you can look in to mutual funds. The wide variety of mutual funds available is too extensive to detail in this article, but with careful research, you can easily pick mutual funds that beat inflation rates and don't incur unreasonable risks.

At the top end of the risk ladder, you can invest in stocks individually. This is best done if you have enough to invest to create a diverse portfolio and have the time and education to make good picks. Be warned however, if your picks don't gain value, you can risk not just loosing your investment to inflation, but to the market itself. Inflation could end up being the least of your worries.

The most important thing you can do to protect yourself from inflation is simply to invest in something that earns a reasonable rate of return. Check with your local bank to see what options they have for interest bearing accounts. The worst option is to leave all that money under your bed. If you do, it's absolutely certain it will be worth less each year.

Learn more about this author, Erich Rosenberger M.D..
Click here to send this author comments or questions.

Add your voice

Know something about Best funds for inflation protection?
We want to hear your view. Write now!