The affect of Inflation perhaps gives us the best evidence of why it is so important to invest. In today’s video we will explain everything you need to know about Inflation as a beginner to investing.

Here’s what we will learn in today’s video:

First, we will explain what inflation is and how it has come to be known as the invisible tax. 

Then, the things you need to be thinking about with regards to your savings and your salary in order to avoid the negative affects of inflation.

Finally, we will show you how investing has historically been one of the best ways to beat inflation over time.

This is Inflation explained by The Simple Economy

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Investing for Beginners UK: Inflation Explained in Simple English

Inflation is a term that we often hear in the news, but what exactly does it mean? How does it affect our everyday lives and, more importantly, our investments? This article aims to explain inflation in simple English, particularly for beginners in the UK.

Inflation refers to the general increase in prices of goods and services over time. It means that, on average, things become more expensive as time goes by. This concept is important to understand because it affects the purchasing power of our money.

Let’s say you have £100 today and inflation is at 2%. In a year’s time, the purchasing power of that £100 will decrease. This means that the same goods and services that you could have bought for £100 today would cost £102 a year later, assuming an inflation rate of 2%. So, effectively, your money has decreased in value because you can buy less with it.

Now, you might be wondering, why does inflation occur? There are several reasons for this. One of the main factors is the increase in the money supply. When there is more money in circulation, it can lead to higher demand for goods and services, which, in turn, drives the prices up. Additionally, inflation can occur due to increased production costs, such as wages and raw materials.

Inflation can impact your investments in various ways. Firstly, it erodes the purchasing power of your money, as mentioned earlier. So, if you keep your savings under a mattress or in a low-interest savings account, the value of your money will likely decrease over time. This is because the interest rates offered by most savings accounts often don’t keep up with inflation.

On the other hand, investing in assets that tend to outpace inflation can help preserve or even increase the value of your money. Some assets, such as stocks, bonds, and real estate, have historically performed well in periods of inflation. By investing in these assets, you have the potential to earn returns that outpace inflation, thus growing your wealth.

However, investing comes with risks, and it’s important to be aware of them. Asset prices can fluctuate, and you may experience losses in the short term. It’s crucial to have a long-term mindset and diversify your investments to manage these risks effectively.

To protect your investments from the erosion of inflation, you can consider investing in inflation-protected assets like inflation-linked bonds or index funds that track inflation. These types of investments adjust their values based on changes in the inflation rate, ensuring that your investment keeps pace with rising prices.

In conclusion, inflation is the gradual increase in the price of goods and services over time, resulting in the erosion of the purchasing power of money. It’s important for beginner investors in the UK to understand inflation because it affects the value of their investments. By investing in assets that can outpace inflation, such as stocks and bonds, beginners can grow their wealth and protect it from the impact of rising prices. However, it’s crucial to be aware of the risks associated with investing and make informed decisions to ensure long-term financial success.