Buying Power

The Bureau of Labor Statistics recently released its Consumer Price Index report, indicating that January's year-over-year inflation rate was 6.4 percent. With elevated inflation holding steady, it's important to understand the concept of buying power and the importance of preserving it.

Buying power, also known as purchasing power, is the amount of goods and services that can be purchased with a given amount of money. It is directly affected by the rate of inflation in our economy, which causes the real value of money to decrease over time. For example, if you needed $60,000 for living expenses in 2003, you would now need around $100,000 to purchase the same goods and services.

Preserving buying power over the long term is important and is one of the reasons we plan and invest using a bucket-based approach. Short-term money is set aside in stable investments, knowing that inflation may win the short-term round. The remaining segments of the portfolio can then be placed in mid- to long-term investments with the goal of outpacing inflation.

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