The Impact of Inflation on Your Financial Assets

The Impact of Inflation on Your Financial Assets

October 17, 2022

Tagged As: Personal, Wealth Management

By Mark Koch, Wealth Management Officer

Investors and consumers have to go back four decades to observe inflation similar to what we’re seeing today. The impact of inflation is felt by everyone whether it’s at the gas pump, going to a restaurant, or simply going to the grocery store.

Economists often debate the true cause of inflation, but it can be summed up in a simple phrase: inflation is too many dollars chasing too few goods and services. Imagine, if you had the last available iPhone for sale, the price you could command to sell it. There would be many buyers clamoring for the only remaining iPhone and offering an ever higher price for it.

How Inflation Affects Your Investments

So what is an investor to do? One of the goals of a successful retirement plan should be to achieve a rate of return that exceeds the long-term rate of inflation. Over time, inflation will have a negative impact on the value of your money and erode your purchasing power. The chart below illustrates the effect of a 3% annual inflation rate on an initial balance of $100,000.

graph of inflation over time

After just 5 years, the value declines to $85,873 equating to a loss of $14,127 in purchasing power. After 30 years, 3% annual inflation has eroded 60% of your purchasing power.

Investors should evaluate their asset allocation – how much they have in stocks compared to bonds – and determine if they have an allocation with a reasonable probability for meeting their desired distribution needs while also managing volatility in their portfolio. Part of any successful retirement plan is to keep the long view in mind and remember why we have an allocation to stocks. While stocks tend to have more volatility in price relative to bonds, stocks historically have outperformed bonds over the long term and kept pace with inflation – allowing investors to achieve a rate of return that meets and may exceed the long-term rate of inflation, thus preserving their purchasing power.

Safeguarding your retirement assets begins with paying close attention and seeking guidance when necessary. Our Wealth Management Officers are available to assist you in achieving your investment and retirement goals. To learn more about your retirement planning, contact us in the Hills Bank Trust & Wealth Management group to discuss your plans by calling 1-800-899-8858 or by email at You can also visit us online to learn more.

Investment products are not a deposit, not FDIC insured, not insured by any federal government agency, carry no bank guarantee, and may go down in value.