How Young Investors Can Best Combat Inflation

Inflation and interest rates are just a part of the economic landscape. In this segment of “Ask Us Anything” on Motley Fool Live, recorded on Feb. 28, Fool.com contributors Nicholas Rossolillo and Demitri Kalogeropoulos share some advice on how best to deal with inflation as an investor, especially in the long term.

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Nicholas Rossolillo: I think no matter where you start on your journey investing, you’re going to see things like interest rates come full circle at some point. Long term, it’s a moot point. It doesn’t matter. I think if interest rates as a current problem, it’s a business input. Like when we’re investing in businesses, we become business owners, interest rates, inflation, all of it is nothing more than just an input into your business in the here and now and great businesses will find a way to deal with it.

They might undergo some volatility as they try to figure out how to deal with this problem, but great businesses will overcome the problems. I think if you have a 30-year plus time horizon, we’re going to see interest rates come full circle, maybe multiple times. We’ll see them spike, come back down again and we’ve seen that just in the last five years, we saw the Fed funds rate go up to over 2% back down to zero. Now we’re looking at it possibly going back up to 2% again by 2023.

Just invest in great businesses if you have a 30-year plus time horizon get the money in your Roth IRA and invest in great companies with that money and forget about inflation.

Demitri Kalogeropoulos: I’ll just jump in real quick on this too and add a point. I love my Roth IRA, it is my No. 1 financial priority every year to fully fund that thing and I haven’t missed it since I opened it up over 10 years ago. It’s a great vehicle for that. I would just add that personally that inflation for me, I think it’s just a reminder that stocks are basically the best way to go in general, particularly in long term, like you mentioned there.

You’re not going to make bank deposits or when that 2% range we just had some more 3% range. But over the long term, the stock market has traditionally outpaced inflation. I want to say somewhere around in that 10% range with annual growth plus dividends and you’re just not going to be able to do that in any other financial instrument I know of. I think personally I would tell you inflation is just a reminder that stocks, that I need to have a lot of cash in the stock market basically to take advantage of that.

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