Text Size:




Your first thought might be that inflation isn't much of a threat today. And it's true that, over the past several years, inflation has been quite mild, especially in contrast to the period of the late 1970s and early 1980s. However, although inflation has been low, it hasn't disappeared entirely - and, over time, even a low rate of inflation can add up, eroding your purchasing power. For example, in just 20 years, an annual inflation rate of four percent would drive the value of a dollar down to $0.44.

Clearly, you can't afford to tie up too many of your investment dollars in vehicles that won't keep you ahead of inflation. But there's also another danger of "parking'' your money for too long - the ''opportunity cost'' you pay for staying on the investment sidelines. Every "bear'' market in history has ended, sooner or later - and the biggest gains in stock prices have usually been recorded in the first few months of a recovery. (However, you must remember that what's happened in the past doesn't necessarily indicate future results.) If you are still parked in money market accounts and CDs when the stock market turns around, you might miss out on growth opportunities.


Here's the answer: Don't park - diversify. By keeping your investment dollars in a wide range of high-quality stocks, bonds, money market accounts, CDs and government securities, you can reduce the effects of market volatility and give yourself more chances to succeed.

Of course, your exact mix of investments should be based on your risk tolerance, your long-term goals and your time horizon. But even if you are, by nature, a conservative investor, you still won't want to keep too large a percentage of your assets stuck in fixed-rate vehicles. To achieve your long-term objectives, such as a comfortable retirement, you will more than likely need some exposure to stocks - the only asset class that, over time, has significantly outperformed inflation.

So, look over your investments carefully. Make changes when you need to keep your portfolio properly balanced, according to your needs and goals - but don't get stuck in "park.''

The Waynedale News Staff
Author: The Waynedale News Staff
About This Author

Free E-mail Subscription

Receive the Waynedale News every two weeks via e-mail!
* indicates required