How Inflation Really Impacts Your Investments (Not Just Your Groceries)

When people hear the word inflation, they usually think about groceries, fuel, or power bills.
What’s less visible — but far more damaging over time — is the effect inflation has on your investments.

Inflation is the silent force that reduces what your money can buy.
If your investments don’t grow faster than inflation, your real wealth is going backwards.

Inflation and Purchasing Power
A dollar today does not buy what it did ten years ago.
Even low, steady inflation compounds over time.

At 3% inflation, purchasing power halves roughly every 24 years.
At higher inflation rates, the erosion happens much faster.

This matters enormously for long-term investors and retirees.

Why Inflation Is a Bigger Risk Than Market Volatility
Market volatility is obvious and uncomfortable.
Inflation is subtle and persistent.

While markets move up and down, inflation moves in one direction.
Investors who focus only on avoiding volatility often expose themselves to inflation risk instead.

How Inflation Impacts Different Asset Types
• Cash and term deposits struggle to keep up after tax
• Fixed income can be vulnerable during inflationary periods
• Growth assets have historically provided better inflation protection over time

This doesn’t mean avoiding defensive assets — it means balancing them carefully.

Managing Inflation Risk
Effective strategies include:
• Long-term growth exposure
• Diversification across asset classes
• Regular portfolio reviews
• Aligning investments to real timeframes

Final Thought
Inflation is unavoidable.
But losing purchasing power doesn’t have to be.

Legaseed NZ Ltd (FSP1005404) holds a licence issued by the Financial Markets Authority and provides financial advice in relation to financial & retirement planning, investments, KiwiSaver and personal risk insurance. Our disclosure information can be found on our website www.legaseed.co.nz, or is available on request and free of charge.