Over the past few months, the economy has been in shambles. Inflation rates are sky-high, the cost of living is through the roof, and yet it seems big companies are the only ones benefiting. With the cost of literally everything increasing exponentially, businesses have had to find new ways to save money. While some have streamlined their models, switched materials, or implemented one of a million other cost-cutting ideas, almost universally, companies have simply shifted the extra costs onto the buyers. While this is excellent for the company, it leaves the burden on the shoulders of those that can afford it least.

The Problem

chart showing cost of living versus wages

Due to a combination of war, food shortages, supply-chain issues, and massive debt, the cost of living is getting out of control and the only thing big businesses seem to care about is protecting their margins. Coca-Cola (NYSE: KO) is a prime example, few everyday items have increased in price as frequently as Coke. The beverage giant’s primary way of off-setting increasing costs is increasing prices. This is a common occurrence across almost every industry on the planet and it doesn’t leave consumers with many choices; either pay up or forgo buying a product you love.

Historically, the cost of living has never aligned with the rate at which wages increased, meaning you might be worse off even with regular pay increases. Combine this with inflation and holding your wealth in fiat becomes increasingly unattractive. The new problem then becomes making your money hold its value; something far more difficult than it first seems.

The Solution

charts

Investing is crucial to securing your wealth and protecting yourself against inflation. If you have £100,000 sitting in your bank, each year it’ll decrease in value by around 9% (at current UK rates), meaning after 1 year, your funds would be worth just £91,000, after 5 it would be worth just £62,403. Considering it would take the average person (£26k salary) years to save up £100,000, it’s clear that stacking fiat is an incredibly counterproductive way to save.

Luckily, there’s a solution: by investing in a company’s stock our money can grow alongside the business, allowing you to counteract inflation and cost of living increases. While some consider investing risky, there are plenty of ways to mitigate risk. Investing in AA/AAA company or treasury bonds is as close to risk-free as investing can get, to lose money either a high market-cap company or government would have to go completely bankrupt. 

Stocks that offer minimal historical drawdown and stable, consistent returns can also be a great way to hedge against inflation. Rather than looking at high risk, high reward investment, we look for well-established companies with a solid track record of delivering consistent growth. Costco (NASDAQ: COST) is one that comes to mind, it’s increased in value by around 8% annually over a 5-year period, combine this with its $3.60 per share dividend and Costco is a great option for those wanting to ensure their savings aren’t devalued by reckless money printing and multi-billion pound bailouts. 

Conclusion

The cost of living is increasing and unfortunately, there’s not much that can be done about it. However, while you can’t prevent the cost of living from increasing, you can protect yourself against it. Purchasing stock in the companies that you believe in, is an excellent way to shield against inflation and build wealth. However, it’s important to respect your personal risk tolerance, if you’re out of your comfort zone, you’re far more likely to make mistakes with your investment (selling too early, buying at the wrong times, etc). 

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By Jay

Jay is a cryptocurrency expert based in the UK. He's invested in a wide range of projects, ranging from small-cap tokens to large-cap tokens like BTC and ETH. Outside of cryptocurrency he has an unyielding interest in everything related to the stock market. Currently, Jay has been focusing on the macroscale and institutional adoption.

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