Savvy investors realize that inflation is a major investment risk and take steps to mitigate it, such as keeping a portion of their investment portfolio in stocks and stock mutual funds that have a potential for growth. Inflation is feared because it reduces the purchasing power of money. In other words, $1 in the future will not buy as much as $1 today. When the buying power of a person's savings is reduced, the chance is greater that they will retire without sufficient income to live a comfortable retirement lifestyle.
When it comes to inflation, employed people may not be as concerned as those living on "fixed incomes," such as those receiving annuity payments or defined benefit pension payments. The income of employed people is generally not "fixed" for an extended period of time because it is likely that their income will continue to rise throughout their working years. Retirees who have a cost-of-living adjustment (COLA) in their payments are better protected from inflation than those who do not.
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