Minimize The Impact Of Inflation

Let us now show how this works out by a few examples, wherein we may find a clue to a means of minimizing the impact of inflation.

Suppose that in 1940 an investor bought a $1000 bond bearing 3 per cent interest. During the years that followed he would receive $30 each year as income from his investment for the period of the bond itself, say twenty years; at the expiration of that time, he would receive his original capital back again.

There would be two things that would be difficult, if not impossible, to foresee: whether the dollars received as income would all be of the same value throughout, and whether the final return of principal would also be in money of the identical purchasing power which it had at the beginning. The same is true of all other fixed-dollar investments.

Life-insurance dollars, when paid upon the death of the insured, may or may not buy as much as the dollars originally invested in the contract. Even money put away in a savings bank is not exempt from the ravages of inflation.

In the last decade elderly folk have been rudely awakened to the realization that their retirement income, of a fixed number of dollars, has proved insufficient and that they must make many personal sacrifices in order to get along; in some instances, where state or other government aid is provided, some effort has been made to soften the blow by providing modest increases in pension funds.

Another case might be that of a widow whose husband left her "well provided," only to find throughout the years that as a result of the gradual erosion in the purchasing power of the dollar the amount of her financial protection had actually decreased with the passage of time.

From these examples one might conclude that the proper thing to do is to invest all one's money in such things as are revalued from time to time and to avoid strenuously all fixed-dollar obligations. At first glance this seems quite reasonable, and we may be tempted immediately to buy the three classes of investments which are valued from day to day: common stocks, commodities, and real estate. Unfortunately, only the first of these is well within the reach and the investment scope of the average man.