4. Which of the following types of investment would best protect the purchasing power of a family's savings in the event of a sudden increase in inflation?
a.) A 10-year bond issued by a corporation.
b.) A certificate of deposit at a bank.
c.) A twenty-five year corporate bond.
d.) A house financed with a fixed-rate mortgage. Once the mortgage rate is fixed, the payment never changes. If money is suddenly worth less, the mortgage payment will not change to relfect any increase in inflation.
Bonds, whether ten or twenty-five year in length can be affected because the face value may change, altering the yield. Bond investors are a skittish bunch who worry about the future. If inflation is a concern, it will be priced into the bond.
CDs not only feel inflation's impact but may be subject to interest rate reductions because of shifts in monetary policy. (Although changes in interest rates do not affect a CD once it has been purchased, but re-purchasing a CD after the certificate expires can be costly. Tying the money up for too short of a time may make getting the best rate and beating inflation more difficult.)
The Blue Money Report
Financial Commentary covering a wide range of topics concerning money, investing, and how it effects the average investor and their financial health.
It is the World of Money and Investing Explained.
Our Publication
If you are interested in providing your readers with our syndicated column, you can request it here
