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OptionsSwing Presents: Inflation 101 – understanding the impact of inflation on your investments and savings

Jason Lee, Founder and CEO of options trading community OptionsSwing and Ternary Developments offers his perspective on how to protect your investments in these trying financial times.

Jason Lee
Photo courtesy Jason Lee
Photo courtesy Jason Lee

Opinions expressed by Digital Journal contributors are their own.

Everyone from ear-to-the-ground economists to the elite of corporate executives have been feeling the burn lately when it comes to upward-moving prices. With the recent Silicon Valley Bank crash, it has become clear even to those not especially fixated on finance that an economic crisis could be looming with regard to inflation. As no one is immune to inflation, knowing how, where, and how much to spend is key to coming through these difficult days with as much of one’s savings intact as possible. Jason Lee, Founder and CEO of options trading community OptionsSwing and Ternary Developments offers his perspective on how to protect your investments in these trying financial times.

The first step to beating inflation is knowing what inflation is. Inflation, in simple terms, refers to the general increase in prices of goods and services over time. It means that the purchasing power of money decreases as the cost of living rises. Inflation occurs when there is more money in circulation compared to the available goods and services, leading to a decrease in the value of each unit of currency. This phenomenon can affect the economy, as it can impact the affordability of goods, savings, investments, and overall economic stability.

Why is printing money necessarily bad for the economy? Lee explains, “Excessive money printing erodes purchasing power, undermines confidence, disrupts resource allocation, and diminishes savings and investments. It creates imbalances, distorts prices, and can cause economic instability.”  Lee also adds, “You see that in the United States’ economy right now, particularly as relates to the bank runs as  of late. We just printed billions of dollars to help offer bailouts for banks. You cannot insert huge chunks of money into the economy without compromising the value of the money itself.”

Future of banking / What inflationary pressures mean for the future of the economy?

So, what does all this mean for the future of banking in America? Interest rates are determined by The Federal Open Market Committee (FOMC). Whether the FOMC determines to suspend, increase, or decrease interest rates determines how far into our everyday lives the impacts of hyperinflation will be permitted to go. These inflationary pressures in the American economy of the past few years have been most strongly felt in areas such as groceries, gas, home renovations, utilities, and airlines. Car manufacturing was hit especially hard by the supply issues and shutdowns associated with the pandemic.

With general pricing in America hovering approximately 13% higher than what was considered the norm two years ago and skyrocketing rent added in, the standard of living is negatively impacted for most.  Inflation can affect interest rates, which can impact the profitability of banks. If inflation is high, central banks may increase interest rates to curb inflation, which can make it more expensive for banks to borrow money. This can reduce the amount of money banks have available to lend, which can lead to lower profits. Inflation can impact customer behavior. If inflation is high, people may be more likely to keep their money in savings accounts or invest in assets that offer protection against inflation, such as real estate or gold. This can influence the amount of money banks have available for lending.

By the same token, inflation has a bearing on loan demand. If inflation is high, people may borrow more to finance purchases before prices rise further, which can lead to increased loan demand. However, if inflation is too high, people may be hesitant to borrow money, which can reduce loan demand.

High inflation can make it difficult for banks to find safe and profitable investments, which can impact their overall profitability. However, all is not lost, according to Lee, as inflation can harbor unique opportunities for investment. Diversifying one’s savings and investment portfolio remains crucial during times of hyperinflation even for those who feel that they do not have a significant enough allotment of money to contribute. “Every single person should become a long-term investor first, before they try their hand at short-term investing,” Lee advises. “One of the biggest misconceptions I encounter is the belief that investing only benefits those who have huge sums of money to put into it. That is simply not true, and would-be investors should start by picking companies they are passionate about, buying shares, and just holding onto them.”

For those still wary of the inherent gamble of investing, Lee encourages a focus on understanding risk volatility. “Investing is gambling, that’s true because you never know what the stock market is going to do,” he admits, “but playing it safe with big, progressive companies that you can hold for long term is the safe way to start.”

In financial times that do not offer much in the way of certainties, technology is an investor’s most reliable friend, Lee believes. He hopes potential investors will recognize how to utilize the ever-changing face of the available investment software to their best advantage. “Think about the history of trading,” he says. “It used to be that you had to have a guy on the stock market floor. Now, with data aggregators, auto-trading bots, charting tools, and so much more developing every day, any person can access the stock market for his or her financial benefit.” 

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Jon Stojan is a professional writer based in Wisconsin. He guides editorial teams consisting of writers across the US to help them become more skilled and diverse writers. In his free time he enjoys spending time with his wife and children.

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