Let’s be honest, watching your hard-earned money lose value feels very bad. And with inflation sitting stubbornly high across Australia, many of us are feeling the pinch more than ever. Your grocery bills have gone up, petrol prices make you wince, and that dream holiday seems further away despite having the same savings balance as last year.
But here’s the thing that keeps me up at night, and it should probably concern you too. It’s not just about prices going up. The real problem is how we’re responding to it. Currently, many Australians are making critical mistakes with their wealth without even realising it, mistakes that will cost them thousands in the long run.
With so many possible mistakes, let’s begin with what you can do and what you cannot do.
Why Keeping All Your Money in Cash During High Inflation Is a Costly Mistake
When everything feels uncertain, holding onto cash feels like the safest option. You can see it, you can access it, and there’s no scary market volatility to worry about. But here’s the uncomfortable truth that your bank probably won’t tell you clearly enough.
If inflation is running at around five or six per cent and your savings account is earning maybe three per cent interest at best, you’re actually losing money every single year. That’s not safety; that’s a slow leak in your wealth bucket. The purchasing power of that cash is eroding faster than it’s growing, which means in real terms, you’re getting poorer just by trying to stay safe.
Now, I’m not saying you shouldn’t have an emergency fund in cash because you absolutely should. But parking all your wealth there during high inflation? It’s like trying to save a sinking boat with a teaspoon.
Ignoring Alternative Investments During Inflation: Why You’re Losing Out
When the topic is about protecting wealth against inflation, people immediately think of the ultra-wealthy with financial advisors on speed dial. But that idea is a thing of the past. Masses of people in Australia can now protect their purchasing power via various investments available to them.
Take precious metals, for instance. Gold and silver have historically held their value during inflationary periods because, unlike paper currency, you can’t just print more of them. And before you think this means you need to become some kind of investment guru, it’s actually pretty straightforward these days. Reputable bullion dealers operate across Australia, many with online platforms that make buying and storing precious metals easier than ever before.
The mistake here isn’t just ignoring these options; it’s dismissing them without actually understanding how they work or how accessible they’ve become.
Avoiding the Stock Market During Inflation: The Hidden Cost of Playing Too Safe
Yes, the stock market can be volatile, and yes, seeing your portfolio dip can make your stomach turn. But completely avoiding shares during inflation can be a massive mistake, especially if you’ve got a longer time horizon before retirement.
Companies, particularly those with strong pricing power, can often pass increased costs onto consumers. That means their revenues and potentially their share prices can keep pace with or even exceed inflation over time. Property trusts, infrastructure companies, and businesses with essential products often do reasonably well in inflationary environments.
The key isn’t to avoid shares altogether but to be strategic about where you invest.
- Dividend-paying stocks from established companies can provide income that helps offset inflation’s impact.
Just sitting on the sidelines means you’re definitely losing to inflation, whereas being invested at least gives you a fighting chance.
Inflation and Debt Management: How to Use Good Debt to Your Advantage
Here’s something that might surprise you – not all debt is equal during inflationary times. If you’ve got a fixed-rate mortgage at a low interest rate, you’re actually benefiting from inflation in a weird way. You’re paying back your loan with dollars that are worth less than when you borrowed them.
However, if you’re carrying high-interest credit card debt or personal loans, that’s a different story entirely. That debt is eating into your wealth faster during inflation because you’re paying interest with money that has less purchasing power while prices keep climbing around you.
The mistake is treating all debt the same and not having a strategic approach to managing it during these times. Savvy borrowers are even using low-rate equity releases to buy hard assets like penthouse suites, locking in today’s cheap debt while the property’s rental income and value adjust upward with inflation.
- Good debt at low rates? That’s actually working in your favour right now.
- Bad debt at high rates? That needs to be priority number one to eliminate.
Why Waiting Out Inflation Can Destroy Your Wealth Over Time
Perhaps the biggest mistake of all is adopting a “head in the sand” approach and hoping inflation will just sort itself out. Maybe it will eventually, but how much wealth are you prepared to lose while waiting?
The reality is that protecting your wealth during inflation requires active decisions, not passive hoping. It means educating yourself, being willing to explore options you haven’t considered before, and actually taking steps to diversify how you hold your wealth.
You don’t need to become a financial expert overnight, but doing nothing is a decision in itself, and it’s rarely the right one when inflation is running hot.
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How to Protect and Grow Your Wealth During High Inflation in Australia
Inflationary pressures or government policy: none of these are under our control. What we can control, however, is our response to these challenges. The errors discussed today are common, they’re quite understandable, and above all, they are correctable.
First, one must look at their existing wealth.
- Is it mostly invested in cash?
- Is the investor ignoring whole classes of assets because they seem too complicated?
- Does the debt strategy even make sense today?
Even small changes may, however, turn out to be big enough to make a meaningful difference over time. And the best time to protect your wealth from inflation was probably last year. The second-best time is now!
