• OnlyFunds Investment Adviser Staff

What is Inflation? (And How to Beat It)

Updated: Apr 30

There's a lot of talk about inflation these days. The news and politicians can make it sound like the end of the world - all your money slowly disappearing. In this article we take a little bit of the mystery and hysteria out of inflation, and give you ways to beat it.


So what is inflation exactly?


Inflation simply means the rate of increase of prices. The price of groceries, the price of cars. The price of a haircut and the price of a tractor. Really, the price of everything we as consumers buy. There are a bunch of different ways to measure it, but the most commonly reported one is the CPI, or Consumer Price Index. That just takes a bunch of consumer goods (think your groceries and your rent and everything else you buy) and measures the price level at different points in time. If the basket of stuff measured costs $100 one year, and the next year it costs $105, we'd call that 5% inflation.


We expect a little bit of inflation every year. Remember when movies used to cost a nickel? Me neither, but it's something may grandfather said. Now, you're lucky if you can get a movie ticket for $10. That's inflation over time.




Now, a little bit of inflation isn't bad; it's actually a sign of a healthy economy growing. That's your run-of-the-mill 2% inflation every year. However, when inflation gets into high gear, think 4, 5, or even our latest reading of 8.5%, things get a little dicier. People will notice that their money doesn't go nearly as far as it did last year. And while jobs do give raises to compensate for inflation, many do so too little or too later. So for the same $1,000 you made last year, you can get 8.5% less stuff this year. People feel that squeeze.


You can also think about this from the point of view of your bank account: say you have $1,000 in the bank, and a cup of coffee costs $2. You have, in your bank account, the ability to buy 500 coffees, (though we wouldn't recommend drinking them all at once). Now imagine a year goes by, and that same cup of coffee costs $2.50. You haven't spent a dime of your money, but now your bank account can only buy 400 coffees.


You're saving money, but you're still losing money! Not great - you worked hard for it.


So what can be done about this? How do we beat inflation?


Here's the bottom line: you have to put your money to work. While you're working hard to make more, your money can also work hard to make more. You have a couple different options.


  1. Your bank account likely pays some interest for keeping money in there. Usually though, its peanuts. The typical checking account pays 0.03%. After 5% inflation... you've basically lost all 5%.

  2. Savings accounts aren't much better. The typical savings account usually pays little more than checking, coming in around 0.06%. Sometimes you can get high-yield savings accounts that pay better, up to 0.5%. After 5% inflation, you're still hurting.

  3. You can invest the money. Investing in the markets is one of the only good ways to keep up with inflation! The stock market has averaged a 9.9% annual return over the last 30 years, easily beating out inflation for people who stick with it. It makes sense when you think about it. Stocks go up when companies make more money. Companies are the ones who raise prices of things they sell. We'd expect the value to be passed through during times of inflation.

How OnlyFunds can help


You can open an account with a $0 minimum, and start stashing away your money somewhere where it has a fighting chance against inflation. It pays to start saving now, before inflation eats away at your hard earned money.


And for those of you who want to know some of the secret sauce (nerds!), here's a couple ways we help beat inflation even more than just owning stocks:


  • OnlyFunds invests in commodities, the raw materials that help drive the economy. Think lumber, copper, iron, wheat, etc. The things you use to build a house or make new stuff with. Commodities tend to do well in times of inflation. If the problem is that the price of stuff is going up, it pays to own... well... stuff! Which is exactly what commodities are. Find out more on Why We Love Commodities.

  • OnlyFunds invests in gold. Gold is a special case of commodities. It's been around for thousands of years as a store of value, and does well in times of inflation. People think of it as a safe haven that tends to hold its value, so its price tends to go up with inflation.

  • OnlyFunds invests in utilities companies. This one is a little boring, but people need to buy utilities (think heat and water for their homes) pretty much no matter the price. utilities companies are well-suited to be able to pass on the rising costs of inputs to consumers, meaning they'll earn the same amount.

  • Finally, and bear with us here, at some risk-levels OnlyFunds may invest in bitcoin. This one is a little controversial, but there are a lot of arguments for bitcoin to be a longer term inflation hedge: there are only a certain number of bitcoins that will ever be in existence, and that scarcity can keep them valuable. That may help the asset keep up with inflation, but we need to see more to get a definitive answer.