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Inflation

Inflation Is Causing Everything To Cost More. Here’s How Investing Can Gain Back Your Spending Power

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Inflation Is Causing Everything To Cost More. Here’s How Investing Can Gain Back Your Spending Power

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Americans are living through the highest inflation in 40 years, with prices rising 8.3% year-over-year in April. That means it costs more to fill up your car and your shopping cart. But what does it mean for your investments?

By investing your money in the stock market, you are attempting to beat the rate of inflation. When you don’t invest, the purchasing power of money in your checking account drops – a dollar buys less gasoline, for example – so your investments should rise to meet the higher prices.

“Ideally, the proposition by the stock market is that if you have your money in the stock market, you’re able to protect your money from losing its value from inflation,” says Daniel Demian, a senior financial advisor at Albert, an automated money management and investing app.

That changes when inflation is higher than expected or comes as a surprise. And with persistently high inflation driven by the supply chain shocks of COVID-19 and Russia’s war in Ukraine, that’s the case now. 

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“This is unfortunately a time when you have to wait it out and let the storm pass,” says Liz Young, head of investment strategy at SoFi, an online finance company. 

High inflation can wreak havoc on your spending and investments. Fortunately, experts say investing is a great way to claw back some of that lost spending power. The best strategy is to stick with it for the long haul. 

How Inflation Affects Investment Assets

The main trouble with inflation is that it makes your money lose value over time. Inflation is a normal thing, with the Federal Reserve usually targeting to keep it around 2% every year, but it doesn’t always hit that figure. When inflation is around 8%, like it is now, that means a high return is needed to keep your purchasing power intact. The stock market is a good place to find higher annual returns. The S&P 500, for example, has averaged an annual return of 10% to 11% since its inception in 1926, and about 8% since it adopted 500 stocks in 1957. 

Other assets are also affected by inflation. Some, like commodities and real estate, typically rise as inflation does. A problem with real estate right now is that housing prices have already risen dramatically. “Inflation has already driven those prices up so much, especially real estate, that I actually don’t think this is a good time to buy real estate as an inflation hedge,” Young says.

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When investing, it’s important to ensure you have a balanced, diversified portfolio. That starts with broad, low-cost index funds that track major stock market indexes or the whole stock market. “Make sure you’re not overly concentrated in one area but you’re diversified,” Demien says. 

Now can be a good time to get started with investing if you aren’t already. It doesn’t have to be complicated: If you’re putting money away for retirement, make sure you max out your contributions to a 401(k), and if you have one, a Roth IRA, both of which offer tax advantages. A taxable brokerage account is also a way to put money in the market and take advantage of returns if you don’t want to wait until you’re 59 ½. Then you can buy broad, diversified funds, which tend to fare better and with less risk than picking individual stocks. Those can include mutual funds or exchange-traded funds (ETFs) that track indexes of stocks. 

What Inflation Means for Long-Term Investors

You may not need access to your investments for years or even decades, in which case this inflation and market volatility shouldn’t bother you much at all. Make sure you continue to contribute to your retirement accounts, like your Roth IRA, and put enough into your 401(k) to at least get the employer match.

Panicking can turn temporary dips in your portfolio’s value into irretrievable losses, Young says. Don’t let the volatility of the stock market scare you into something you’ll regret, like selling your investments. Stick with your plan and look at the long term. “If you’re not retiring in the next year, your time horizon is much longer and you can withstand some of the bumps and I would argue you should withstand some of the bumps,” she says. “Over long time periods, the market rises. It never really pays to freak out in the short term, lock in losses, so on and so forth.”

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Pro Tip

If you’re not planning on needing your investments for a while, don’t worry about hiccups in the market caused by inflation. Stick to your strategy.

What If I Need the Money Soon?

If you’re nearing the end of your investment horizon, with retirement planned soon, that changes the strategy, Young says. “At that point you’re no longer making money, you’re just spending your money and you’re spending it down,” she says. “That’s when it becomes more important to maintain purchasing power and to have more defensive investments that can protect against inflationary forces.”

There are ways to invest your money in ways that are less susceptible to the volatility that comes with high levels of inflation. One is to invest in mutual funds or ETFs that track less-volatile aspects of the market, often labeled “low volatility” funds, Young says.

Some assets that are designed to guard against inflation, such as Series I Bonds or Treasury Inflation Protected Securities (TIPS) might also be valuable in your portfolio if you’ve got a shorter timeline, Demian says. 

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“If you need your money within the next year or two or three, you might want to be more conservative, but if you’re looking at more long-term objectives, then you do have a little bit more capacity to take on risk, especially when it comes to the stock market,” Demian says.

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Bitcoin

Bitcoin Reclaims $30K Territory After Recent Weeks’ Struggle – Analysts Weigh In

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Bitcoin Reclaims $30K Territory After Recent Weeks’ Struggle – Analysts Weigh In

Bitcoin recorded a significant positive divergence early Monday, following seven days of trading below $30,000. The crypto is trading at $30,536.93 at press time, a decrease of 2.5 percent from the previous week, according to Coingecko data.

In the preceding 24 hours, the worldwide cryptocurrency market capitalization increased by almost 2 percent, reaching nearly $1.3 trillion. However, the total trading volume of cryptocurrencies was up by more than 28 percent to $62.13 billion.

Bitcoin has struggled in recent weeks as the U.S. Federal Reserve has increased interest rates and inflation has remained up, increasing the likelihood of further monetary tightening.

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Suggested Reading | Cardano (ADA) Grapples At $0.524; Bullish Trajectory Coming

Bitcoin No Longer A Hedge Vs. Inflation?

In the past, Bitcoin was recommended as a hedge against inflation, but in recent months it has proven to be closely associated with risk assets, such as the Nasdaq 100, which has fallen in response to broader market volatility.

Over the past 10 days, Bitcoin’s price has been trading flat, consolidating around $30,000. Bitcoin may find it difficult to recapture its former glory, since investors appear to be avoiding riskier assets in the present inflationary environment.

According to Mudrex Co-Founder and CEO Edul Patel:

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“Despite a nearly 3 percent increase over the past 24 hours, Bitcoin was unable to breach the US$30,000 threshold. Over the last week, Bitcoin’s price remained unchanged, as it struggled to move beyond its support.”

The Dow Jones Industrial Average (DJIA) has decreased for nearly eight consecutive weeks, and major indexes have followed suit.

As the S&P 500 declined, a strong correlation between it and the crypto markets became clear. BTC ending the week at $30,000 represents its seventh straight weekly closing in the red territory, according to Darshan Bathija, CEO and Co-Founder of Vauld.

BTC total market cap at $578 billion on the daily chart | Source: TradingView.com

For his part, popular crypto analyst Lark Davis writes:

“Bitcoin is exhibiting a massive bullish divergence on a daily scale. The last time something similar occurred was in 2021. Could this portend a massive rally?”

Suggested Reading | Cosmos (ATOM) Skyrockets 12% Following Bitcoin And Ethereum Recovery

Crucial Next Two Weeks For BTC

Genesis Global Trading’s Noelle Acheson and Konrad Laesser said in a Saturday note that the price of Bitcoin will likely fluctuate between $29,000 and $31,000 over the next two weeks.

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Some economic-data releases, such as U.S. gross domestic product (GDP) or inflation figures, “may alter the narrative,” according to Acheson and Laesser.

According to analysts at WazirX Trade Desk, BTC’s monthly trend has broken below the ascending channel pattern.

Meanwhile, the next level of resistance for BTC is anticipated to be $40,000, while the nearest level of support is $24,000.

Bitcoin’s monthly relative strength index is currently at 47, its lowest level in more than two years. The support level for the RSI is 43, according to analysts.

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Featured image from Al Bawaba, chart from TradingView.com

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Binance

Prepare For Recession: Musk And Goldman Sachs’ Blankfein Weigh In; Galaxy Digital’s CEO Talks On Terra Collapse — Bitcoin.com News Week In Review

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Prepare For Recession: Musk And Goldman Sachs’ Blankfein Weigh In; Galaxy Digital’s CEO Talks On Terra Collapse — Bitcoin.com News Week In Review

This week, both Goldman Sachs’ Lloyd Blankfein and Tesla boss Elon Musk weighed in on the issue of an impending recession in the U.S., issuing sobering estimations. In the wake of Terra’s epic implosion, the topic is all the more critical, but LUNA-tattooed Galaxy Digital CEO Mike Novogratz still thinks the “crypto revolution is here to stay.” This is the Bitcoin.com News Week in Review.

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Goldman Sachs’ Blankfein Advises Companies and Consumers to Prepare for US Recession — Says It’s a ‘Very, Very High Risk’

Lloyd Blankfein, a former Goldman Sachs CEO who is now the firm’s senior chairman, has warned about an impending recession in the U.S. Blankfein says that companies and consumers should prepare, and stressed that it’s a “very, very high risk.”

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Elon Musk: US Economy Is Probably in Recession That Could Last 18 Months — Warns It ‘Will Get Worse’

Tesla and Spacex CEO Elon Musk says that the U.S. economy is probably in a recession and it could be “tough going” for 12 to 18 months. He added: “The honest reason for inflation is that the government printed a zillion more money than it had.”

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Onchain Analysis Report Says Terra’s Bitcoin Reserves Were Sent to Binance and Gemini

After the collapse of Terra’s once-stable coin terrausd (UST), a number of people wondered where the Luna Foundation Guard’s (LFG) bitcoin went, as the funds were supposed to be used to defend UST’s $1 parity. On Friday last week, the blockchain intelligence and analytics firm, Elliptic, published a blog post that summarizes where the bitcoin was sent, according to the firm’s network surveillance tools.

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Billionaire Investor and Galaxy Digital CEO Mike Novogratz Addresses the Terra LUNA and UST Fallout

On May 18, the billionaire investor and crypto proponent Mike Novogratz published a post about the recent Terra blockchain fallout. Novogratz and his firm Galaxy Digital were big believers in the Terra project, and the investor even got a LUNA-centric tattoo on his arm. Despite the recent events and losses the crypto economy felt this past week, Novogratz stressed that he still firmly believes the “crypto revolution is here to stay.”

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Binance, Blankfein, collapse, crypto revolution, Crypto Tattoos, do kwon, economics, Elon Musk, Galaxy Digital, Gemini, Goldman Sachs, inflation, Lloyd Blankfein, LUNA, Mike Novogratz, Onchain analysis, Recession, Tattoo, Terra, U.S. recession, UST, Week in Review

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Do you think a recession is on the way? How will crypto fare through it all, if so? Let us know your thoughts in the comments section below.

Bitcoin.com

Bitcoin.com is your premier source for everything Bitcoin-related. We can help you buy bitcoins and choose a bitcoin wallet. You can also read the latest news, or engage with the community on our Bitcoin Forum. Please keep in mind that this is a commercial website that lists wallets, exchanges and other Bitcoin-related companies.

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Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

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biden ratings

Kevin O’Leary Expects US Crypto Regulations To Come Out After Midterm Elections

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Kevin O’Leary Expects US Crypto Regulations To Come Out After Midterm Elections

Shark Tank star Kevin O’Leary, aka Mr. Wonderful, says U.S. crypto regulations will not come out until after the midterm elections. He explained that President Joe Biden “is not interested in discussing crypto” when his approval ratings have sunk to record lows. O’Leary also cited other factors, including double-digit inflation and high food and gas prices.

Kevin O’Leary on Crypto Regulation, Biden’s Policy

Shark Tank star Kevin O’Leary talked about bitcoin and cryptocurrency regulation in an interview with Stansberry Research, published Friday.

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He was asked how far away the U.S. Securities and Exchange Commission (SEC) is from approving a spot bitcoin exchange-traded fund (ETF).

“It’s a long way away,” O’Leary replied. “That’s not what’s going to happen first. I think what’s going to happen first is we are going to see policy on stablecoins.” He cited two bills that have been proposed for the regulation of stablecoins. One was introduced by Senator Bill Hagerty and the other by Senator Pat Toomey.

Noting that a bill on stablecoins will be easy to pass after the midterm elections, he emphasized:

Nothing’s gonna happen until after the midterms. Biden is not interested in discussing crypto when his poll ratings are, you know whatever it is, sub-31%. That’s not a place where he wants to go, so you’re gonna have to wait until after the midterms.

Mr. Wonderful noted that when Biden issued the encouraging executive order on crypto, his ratings were higher. A new poll shows that President Joe Biden’s approval rating dipped to the lowest point of his presidency in May; only 39% of U.S. adults approve of his performance as president.

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The U.S. midterm elections are scheduled for Nov. 8. If the Republican Party gains control of either or both chambers, it will have the power to thwart the president’s plans.

O’Leary explained that crypto is not one of the “issues that when you are declining in the polls, you become a champion of. That doesn’t help you.”

Noting that “The market is correcting … People are getting gas at the pump, going to the driving season, at unheard-of prices the last 20 years. The price of protein’s up 20% to 40%,” the Shark Tank star said:

Biden’s facing close to double-digit inflation … He’s not sitting around worrying about crypto.

In addition, O’Leary described that there are a lot of different proposals coming out of the SEC around climate change, crypto, and bitcoin mining. “So it’s a very volatile situation right now,” he said.

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Mr. Wonderful was also asked if he thinks this crypto winter will be a long one and where the market will head now.

“The forecasts for bitcoin have never been accurate. No one’s been able to forecast its volatility,” he opined. “And you know, the speculation that it was going to be a hedge against inflation was just flat out wrong.” He continued:

I’d argue that the volatility of bitcoin is going to remain very akin to what Amazon was for the first 15 years — 30% to 50% corrections every 12 months.

He explained the reason was that “There was no institutional support in the early days of Amazon.” The Shark Tank star asserted: “That’s the same right now for bitcoin … People talk about institutions owning it. That’s just not true. They don’t own any of it and they won’t until the SEC rules on it.”

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biden ratings, bitcoin spot etf, high food price, high gas price, inflation, Joe Biden, kevin o’leary, kevin o’leary bitcoin, kevin o’leary crypto, kevin o’leary cryptocurrency, Kevin o’leary biden, midterm elections, midterms, midterms crypto, SEC, Stablecoins

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What do you think about the comments by Kevin O’Leary? Let us know in the comments section below.

Kevin Helms

A student of Austrian Economics, Kevin found Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open-source systems, network effects and the intersection between economics and cryptography.

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Image Credits: Shutterstock, Pixabay, Wiki Commons

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Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

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