Saving vs. Investing: Inflation Edition

By Josefin Gatsby on 04/21/2023.
Saving money is often praised as a smart financial move. But is it really? 

Did you know that saving cash during a period of inflation can actually cost you money?

What Happens to Savings During Inflation?

During inflation, everything gets more expensive. So each dollar saved buys less than it did the year (or month) before. 

In 2022, we saw inflation hit 8%. This means that the average cost of goods and services increased by 8% compared to the year before. What did this do to savings? It reduced the purchasing power of each dollar by 8%. Suddenly, each dollar you had in the bank was worth more like 92 cents. 

Now, what would happen if we saw an extended period of inflation?

Let’s say inflation averaged 8% over the next 10 years…

If you had $100,000 sitting in your bank account, not earning interest, it would be worth just $43,439 in 10 years. Yikes! 

What Happens to Investments During Inflation?

Now, what happens if you invest your savings instead of simply sitting on a pile of cash?

During inflation, investments typically earn higher returns. With a smart, inflation-friendly investment (in real estate, for example), it’s possible to earn returns of 15% per year when inflation is high.

So, what if you invested your $100k in a real estate project (or series of projects) averaging 15% per year instead of letting it sit in a bank account?

At the end of 10 years, your $100k would be worth $404,556!

Do You Want $43,439 or $404,556?

Saving without investing costs you money during inflation. But investing earns you money - potentially lots of money!

So the choice is yours. Are you going to sit on your cash and watch its value drop? Or are you going to invest and watch your wealth grow?!

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