Avoid these four costly mistakes as inflation edges higher

Inflation’s creeping up again, rising 0.4% in March and putting prices 3.5% higher than a year ago. Propelled by escalating gasoline and rent prices, the Labor Department’s recent report puts pressure on hopes that the Federal Reserve will cut interest rates any time soon and suggests that inflation might be stickier than experts thought. It’s the third straight report showing increasing inflation year over year.

Finder’s most recent Consumer Confidence Index shows that inflation is a primary concern among Americans, with 62% of respondents saying it impacted their approach to saving and spending. With inflation still elevated and the possibility of it persisting higher for longer, here are four crucial missteps to avoid.

1. Sitting on the sidelines and not investing

Not investing when inflation is high can be a mistake because inflation erodes the purchasing power of cash over time. When prices rise faster than the value of money, the real value of cash decreases. By not investing, you miss out on opportunities to grow your wealth and protect it from the erosive effects of inflation.

Inflation-resistant assets like real estate, commodities — particularly gold and bitcoin, as of late — and certain stocks, like those of quality companies that generate cash, have historically outpaced inflation. Assets like these allow investors to preserve and potentially increase their purchasing power even as inflation runs hot.

Investors looking for beginner-friendly brokers should consider those that offer access to inflation-resistant assets.

2. Failing to reassess investments

Inflation can impact asset classes differently. Some assets, like commodities or real estate, may perform well in inflationary environments, while others, like bonds, may struggle. Failing to reassess asset allocations can lead to an imbalance in your portfolio, exposing you to unnecessary risks or missed opportunities for growth.

It’s always a good idea to periodically evaluate and, if needed, adjust your investment strategy and portfolio, but it’s even more important to reassess your investing approach during inflationary environments. Ignoring the need to rebalance portfolios or reassess asset allocations can result in increased exposure to inflation risks and suboptimal investment returns.

3. Panic selling or drastically changing your investment approach because of a headline

Reacting impulsively to inflation-driven news and market fluctuations isn’t usually a good idea. Avoiding knee-jerk reactions and sticking to a well-thought-out investment plan can prevent locking in losses and missing out on potential gains.

Panic selling disrupts long-term investment plans and strategies, hindering your ability to achieve your financial goals. Instead of reacting impulsively to market volatility, focus on maintaining a disciplined investing approach and staying focused on long-term objectives.

4. Ignoring high-yield savings accounts for your cash

Short-term interest rates are still high, offering a haven for individuals with cash by providing the opportunity to earn higher returns on their savings compared to low-rate environments. This can be particularly advantageous for those seeking to preserve the purchasing power of their cash holdings in the face of inflation.

But keeping your cash in a regular savings account, like those that many brick-and-mortar banks offer, just won’t cut it. The national rate for these types of savings accounts is a measly 0.47% as of March 18, 2024. Simply, the interest you’re earning in a regular savings account is nowhere close to keeping pace with rising prices, resulting in a significant loss of purchasing power over time.

In periods of high and rising inflation, leveraging high-yield savings accounts can help preserve wealth. The best high-yield savings accounts currently pay annual percentage yields above 5%.

Bottom line

As inflation remains elevated and potentially continues to rise, remember to stay on course and stay invested. Put your money to work in assets that have historically outpaced inflation, and don’t ignore the value of high-yield savings accounts for your cash.

Matt Miczulski is an investments editor at Finder. Matt dissects and reviews brokers and investing platforms to expose perks and pain points, explores investment products and concepts and covers market news, making investing more accessible and helping readers to make informed financial decisions.

Before joining Finder in 2021, Matt covered everything from finance news and banking to debt and travel for FinanceBuzz. His expertise and analysis on investing and other financial topics has been featured on CBS, MSN, Best Company and Consolidated Credit, among others. Matt holds a BA in history from William Paterson University.

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