Have you ever devoted so much time and effort into planning a party that you lost sight of what the party was even for in the first place? Like it or not, such things simply seem to be part of what it means to be human – we get caught up in the excitement of it all and forget about the underlying purpose
Living in a dynamic financial environment that often includes dramatic swings in the stock markets, global headlines that cause you to pause, and an endless variety of variables that affect all your financial decisions, it’s crucial to focus on what your investments are meant for. Simply put, to grow your asset base and maintain purchasing power so you don’t outlive your money.
More often than not, the purchasing power component of that equation is what gets lost in the shuffle. While the daily undulations of the stock market can be thrilling, ultimately, you subject yourself to that financial drama to maximize what your money can do for you. In other words, you want your assets to have the power to purchase the same goods and services tomorrow as they do today, ideally even more so.
Why Is Purchasing Power So Important?
Imagine a scenario where – at least on paper – your money grows seemingly well over the long term, and each new account statement brings a smile to your face. As you reach your monetary goal – whether that’s retirement, a vacation home, or the fishing boat you’ve long pined for – you cheerfully take a distribution from your account only to find out that the price of your goal has risen more than your money has grown.
That, in a nutshell, embodies why purchasing power is so important. It’s not only a matter of your money growing, but unfortunately, your money shouldn’t give up ground to the prices of everything around you either. In the case of retirement, this is most often seen in the nightmare scenario of people saving their entire lives to only run out of money. Fighting inflation to maintain purchasing power is a constant battle to preserve the effectiveness of your money throughout all stages of life, including retirement.
Purchasing Power and Your Investments
Harkening back to the original statement, as you lay out your financial strategy and assemble a game plan to help you reach your goals, always remember that concepts such as risk, time horizons, and even growth expectations don’t exist in a vacuum and are essential for a very specific reason… So your money maintains its potency and power over time.
Therefore, when deciding how much risk to absorb within your asset allocation, finding a balance between a good night’s sleep and maintaining purchasing power should be at the top of your priority list. Don’t take on so much risk that it creates insomnia, but enough to give your money the teeth it needs to combat the relentless march of inflation constantly.
Have questions about whether or not your portfolio is keeping up with inflation or need help with your financial plan? We’re here to help! Simply click here or call (763) 445-2772 to schedule a complimentary consultation today!