BMO InvestorLine: Beware of Inflation's Potential Effect on Long-Term Savings
TORONTO, ONTARIO--(Marketwire - Dec. 11, 2012) - BMO InvestorLine reminds Canadians of the importance of monitoring inflation rates to ensure that fluctuations do not adversely impact long-term savings and investments.
"Inflation, whether high or low, can affect investors' long-term savings and permanently alter their lifestyle," said Viki Lazaris, President & CEO, BMO InvestorLine. "Fortunately, there are many ways investors can ensure inflation does not jeopardize their long-term savings."
To maximize savings, Ms. Lazaris notes that investors should be aware of the following:
- Assess exposure: Inflation consumes the purchasing power of an investor's money. If you have money set aside for long-term goals - such as retirement or a child's post-secondary education - it may not meet your objectives if its growth rate doesn't keep up with the rate of inflation.
- Invest for growth: Instead of setting aside savings in a low interest account that may not keep pace with inflation, consider alternative investments that have the potential to grow faster than the inflation rate. For example, by investing the same $50,000 in stocks that earns an average annual total return of eight per cent, the investment may grow to $233,048 in 20 years. Assuming annual inflation averages four per cent, this will yield $106,360 in purchasing power in today's dollars.
- Weigh the risks: While investments such as stocks and equity based exchange traded funds (ETFs) have the potential to earn a higher rate of return than the rate of inflation, this often means they are more susceptible to short-term market volatility. If an investor is not comfortable with market swings or anticipates needing the savings relatively soon, more appropriate investment choices exist; however, they may not earn the same rate of return. Over the long term, a diversified mix of stocks, bonds, and money market investments offers the potential for earning inflation-beating returns without creating undue risks.
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BMO InvestorLine Inc. and BMO Ligne D'action Inc. provide this commentary to clients for informational purposes only. The information contained herein is based on sources that we believe to be reliable, but is not guaranteed by us, may be incomplete or may change without notice. The comments included in this document are general in nature, and professional advice regarding an individual's particular position should be obtained.
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