If you are waiting for prices to come down, don’t hold your breath: The Survey of Professional Forecasters (SPF) released their projection on May 15th that headline consumer price inflation in the United States will hit 6.0% in the second quarter. At the time of their last survey three months ago, the same group was predicting a 2.7% headline consumer inflation rate for Q2 2026. Things appear to be changing rapidly.
Experts are expecting the combination of tariffs and high oil prices to raise our inflation back to levels not seen since early 2023. There’s even talk at the Federal Reserve that they are unlikely to cut interest rates in 2026, and they may actually need to raise them.
In some ways inflation is similar to a tax, reducing what our dollars can buy for us. As inflation rises, we feel that reduced buying ability more acutely. For investors and other savers, the amount of pain that inflation causes is likely to be linked to how their money is being managed.
The most common place that people hold extra money is the bank. While banks are certainly a low-risk place to hold your dollars, they are also a place where your money is almost guaranteed to lose value relative to inflation. Even when inflation is running low at 2%, it can be hard to find banks that are paying even half that much in interest. Bankrate reports that the average savings account in the U.S. is currently paying a 0.61% APY interest rate. Nerdwallet reports an even lower number—0.38% for a regular savings account and 0.57% for a money market.
With a current inflation rate over 3% and projections that it could go much higher, money sitting in bank accounts is very likely losing purchasing power over time. If you’re keeping money in the bank to cover a few months’ worth of expenses, you shouldn’t be concerned with that calculus. Cash reserves are generally appropriate for covering short-term needs. However, if you have a good chunk of money that you don’t expect to spend in the short-term, you should consider better ways to match or beat inflation.
Over time, diversified bond portfolios will often produce returns that outpace inflation. Keeping in mind that gains on investments are likely to be taxed, it is nevertheless feasible to outpace inflation by investing in bonds. It may not be the path to riches, but it sure beats losing purchasing power!
Over the longer run, a well-diversified stock portfolio tends to easily beat inflation, allowing the investor to increase purchasing power over time. Over the past 100 years, the S&P 500 Index has yielded an average total annual return of over 10%. During that same period, the average rate of inflation was about 3.3%, although it fluctuated quite a bit.
Doing the math, if your great-grandfather invested $1,000 into the S&P 500 in 1926 and reinvested the dividends, your family would have a portfolio worth nearly $14 million dollars today—or, adjusted for inflation, over $800,000.
Some people holding cash would argue that they can’t afford to risk being in the stock market. For those of you with long-term investment horizons—say, 10 years or more–I would ask you: can you afford NOT to be invested in the stock market?
Inflation is one of the realities of life. How we manage our money goes a long way towards determining how inflation impacts each of us. For those fortunate enough to have cash on the sideline, don’t let inflation eat up your savings. Use a well-balanced investment portfolio to beat inflation and grow your wealth.
How ever you choose to deal with inflation, invest smartly and invest well!
Larry Sidney is a Zephyr Cove-based Investment Advisor Representative. Information is found at https://palisadeinvestments.com/ or by calling 775-299-4600 x702. This is not a solicitation to buy or sell securities. Clients may hold positions mentioned in this article. Past Performance does not guarantee future results. Consult your financial advisor before purchasing any security.
