Bedford Federal Savings Bank
Financial Services
Inflation

 

 
 
 

 

INFLATION

 

The definition of inflation is the overall general upward price movement of goods and services in an economy, usually as measured by the Consumer Price Index. Over time, as the cost of goods and services increase, the value of a dollar is going to fall because a person won't be able to purchase as much with that dollar as he/she previously could.

Inflation is often thought of as the "silent" investment risk because it is easily overlooked.  Inflation does not cause you to lose your principal when making an investment.  Investors often do not consider current inflation rates when evaluating the interest they are earning on their deposits or investment dollars.

The chart below illustrates the importance of taking inflation into consideration when making investment decisions.  It also shows the devastating effects that inflation can have on the purchasing power of a dollar over time by using some common real world examples that everyone can relate to. 

 

 

The average rate of inflation per year from 1950 through 2010 in the United States has been 3.81% as measured by the CPI (Consumer Price Index).  If you look at the data over a shorter time frame and exclude the higher inflation years of the 1970's and 1980's you get a slightly different number.  The average rate of inflation between 1990 and 2010 has been 2.81%.  From 1950 to 2010, there was only one year when the cost of living declined!  This chart demonstrates that if you keep your long term savings or investment money in short term investments that earn a low rate of return then you are most likely losing purchasing power over time due to the effects of inflation!

 

  

The following chart demonstrates the powerful effects that both inflation and taxes can have on your investments. 

 

 

  

 

  

  

  

  

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

  





 

 

 

Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.  Insurance products offered through LPL Financial or its licensed affiliates.  Bedford Federal Savings Bank and Bedford Federal Financial Services are not registered broker/dealers and are not affiliated with LPL Financial.  The LPL Financial Registered Representative associated with this site may only discuss and/or transact securities business with residents of the following states: IN and FL.

Certificates of Deposit are FDIC insured and offer a fixed rate of return.  Alternative investments may or may not offer an equivalent degree of safety.  Alternative investments to CDs may fluctuate with market conditions, so that upon sale an investor may receive more or less than the original investment. 


 
Not FDIC Insured Not Bank Guaranteed May Lose Value
Not Insured by any Federal Government Agency Not a Bank Deposit

FINRA
SIPC

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