The Reserve Banks' Dilemma: Why the young should care?February 21, 2023
As thought-provoking as our previous blog post is - you might be left thinking and asking yourself so what? Especially when you are still young, it's easy to overlook the impact of rising inflation and interest rates on retirement savings - which looks far away. Ignoring these factors could negatively impact the lifestyle you will afford when you decide to retire, and it's worth at least be aware of them.
The Impact of Rising Inflation
When investing for retirement in the long term, it's critical to consider the impact of rising inflation. Over time, inflation can erode the purchasing power of your savings, meaning that your money will buy fewer goods and services in the future. This is especially important when living in South Africa where inflation has historically been high.
The Impact of Rising Interest Rates
Interest rates also play a significant role in long-term retirement savings in South Africa. When interest rates rise, the value of some investments, such as bonds, can decrease. So, what can young investors do to protect their retirement savings from the impacts of rising inflation and interest rates in South Africa?
Diversify Investments Across Different Asset Classes
One strategy is to have a well diversified portfolio by investing across different asset classes, such as shares, bonds, and real estate. A well diversified portfolio can help you reduce the overall risk and provide a hedge against inflation and interest rate fluctuations.
Your portfolio would ideally also include the inflation-protected securities, such as inflation-linked bonds issued by the South African government. These investments are designed to keep pace with inflation, which can help to protect the purchasing power of your retirement savings over time.
Be Proactive in Managing Finances
Don't let economic volatility in South Africa catch you off guard. Plan ahead and protect your retirement savings with these strategies. This may mean seeking the advice of a financial advisor, or use the free financial tools like the Onemoola useful tools for additional support.