How to beat the Long-Term Effects of Inflation

In 1986, the typical house price in Ireland was a modest €37,000. Fast-forward to today and that figure has skyrocketed almost 600%, now coming in at an eye-watering €275,000! To put this into perspective; if you had purchased a property for just under forty grand back then and sold it off today – your money would be worth over sevenfold (€255K) due to inflation! preservation as initially thought. 



When speaking with customers about their savings or investments, I often hear “I don’t want any risk,” and/or “I’m content with my money on deposit, it’s safe.” Yet what many are neglecting to consider is the impact of inflation. Keeping your funds deposited may not be as secure in terms of value.


People don’t factor in inflation

Inflation can have a significant impact on your savings since it reduces the purchasing power of money. To give an example, if you save €100 now but inflation is at 2%, next year that same amount will only buy goods worth up to €98. It may seem as though in 10 years time you’d need just over €120 for the same buying power as today’s value, however due to compounding inflation rates this would actually be more than €121.

Ireland’s present inflation rate of a difficult-to-swallow 10% paints an uneasy picture. Consequently, €231 is required in a decade to buy the same quantity as today – effectively lessening its buying power due to inflation.


The Power of Compound Interest

Albert Einstein called compounding interest the most powerful tool on earth; “He who understands it, earns it … he who doesn’t, pays it.” Indeed, compounding is responsible for most of the world’s wealthiest people having attained such status through investments and savings. Compounding also works in reverse – when applied to inflation.

If you want to fight the effects of inflation, diversification is your best defense. Inflation might not seem like much in a single year with an average rate of only 2%, but over time it can add up significantly and compound interest amplifies its impact even further. The good news is that you can take steps now to protect yourself from future financial losses due to rising prices by investing strategically into multiple areas that offer protection against inflation’s negative consequences.

Compound inflation can have a devastating effect on your finances; it’s like the opposite of compound interest, working against you instead of for you. Put plainly, this means that as time passes by, your money will be worth less and less due to rising prices. To give an example: if we consider 2% inflation over 25 years’ period, prices would increase nearly 65%. This signifies that in 25 years €164.06 must be spent to purchase what could now cost just €100!


Inflation Creates Instability

Since the worth of money is constantly changing, it’s difficult to plan for retirement. That challenge intensifies when we are unable to predict how high the annual inflation rate will be.


Inflation is Leaking Bucket

As inflation is typically more than 3%, it usually only takes 22 years or less for prices to double. Therefore, when saving money, remember that you are trying to fill a bucket while water is spilling out of small cracks – your savings must be higher than what’s leaking out.


What About Interest on Your Savings?

So far we have just examined piggy bank savings. But what if your money is invested in a bank? Will that help the situation? Unfortunately, while current interest rates are rising they are still mammothed by inflation, and therefore will barely add to one’s existing funds. To put it simply, deposits made into banks do not significantly impact financial security as much as physical piggy banks – meaning depositors’ monies have been slowly decreasing despite any contributions being made.

What about raw materials such as Gold and Silver?

Rising inflation can have a devastating effect on certain investments. Many turn to gold and silver during times of economic uncertainty, as their value typically remains unaffected by increases in prices. Nonetheless, prolonged periods of flux can cause these commodities to become over- or undervalued – rendering them potentially risky investment options.

Despite the historically low inflation rates of the past 15 years, gold and silver have still managed to outpace it. Nevertheless, this may not be a guarantee in terms of their performance. Investing in commodities unfortunately doesn’t generate any current income; hence, you must hope that these assets will keep up with inflation by increasing its value over time.

“Bricks and mortar is the safest investment (.. isn’t it?)”

Irish investors often turn to real estate as a means of keeping up with inflation, yet this was not the case during the market crash when values plummeted. As is true for all investments, it’s important to buy at an advantageous price point. Although owning your home won’t generate any income (yet you’ll save on rent!), investment properties can help protect against inflation while granting you some additional revenue streams.

Trading in the stock market

When investing in stocks, it is ideal for the stock prices to increase with inflation — this maintains their value. Unfortunately, other contributing factors such as speculation (boom and bust), management’s capability of adapting to change, and changing industry demands also play a role in influencing the price of stocks.

Generally speaking, stocks can rise more quickly than the rate of inflation, allowing you to preserve your purchasing power. Although it is possible that the stock could dip shortly after purchase or grow slower than the market overall, some shares also offer dividends in addition to potential share price growth. Dividends behave similar to interest payments – they add funds into your “bucket” while also giving you a chance for share prices themselves to increase with inflation rates.

Other Factors

Taxes can have a considerable impact on your real return, even after you take inflation into account. For instance, if the €100 had been tucked away under a mattress instead of invested in stocks, no taxes would be imposed since concealed money isn’t considered taxable income. With this example however, taxes didn’t come into play as there was no other revenue generated.

If you keep your money in a bank account during this scenario, taxes would be minimal because the interest rate is low and so the profit earned is not much. But if inflation were set at 2% but your savings paid only 2%, then you’d still lose out as there must be taxes thrown on that miniscule amount of return. In other words, if regular inflation rates are just 2%, one may need to earn 3% just to remain level–which includes taxation!

When you have to pay taxes on your interest, it’s almost like some of the money that could’ve gone towards savings is being stolen away. To maximize both safety and success, diversify your approach when saving! For example, if a noteworthy portion of saved funds are stored in deposit or savings accounts–these can be used to cover surprise expenses which usually do not suffer from high inflation rates. By utilizing this strategy, you’ll guarantee each penny goes exactly where it should: into the bucket!

When it comes to safeguarding your money against market instability and inflation, a combination of savings tactics is the most prudent course of action. Commodities such as gold, silver and real estate will likely retain their purchasing power over time but won’t provide you with income in the process. Investing in company stock may offer some dividends while preserving value against rising prices – however this approach can be unpredictable. Thus, employing multiple strategies ensures that you don’t suffer financial losses due to price fluctuations or soaring costs.



To make the most of your money, you should create a personalized savings and investment plan that fits your individual needs. This will ensure that you are not taking any unnecessary risks by only investing in one area. Always seek professional advice before making any final decisions – while an institution may offer some solutions, an independent advisor can provide unbiased recommendations from different sources to help further secure your finances.

When it comes to devising a savings plan, there are two major components you must carefully consider: your time frame and the rate of return.

1) How much time do you have to save?

2) What level of risk can you bear in order to achieve the desired return on investment?

These questions will provide direction for your financial strategy.

It can be tough to set money aside, but by taking into consideration both inflation and your personal financial situation, you will be able to craft the perfect plan for investing your savings. When done correctly this strategy will protect your nest egg from losing its value over time. Reach out to a qualified financial advisor today and get started in securing your wealth against inflation.

Before making any financial decisions, please contact us to discuss the options available. Although this information is purely for informational purposes and not considered professional advice, we are certain that our comprehensive approach can help you achieve your financial goals. Contact us to learn more about how we can help you with maximising your hard earned savings.