More Than 1 in 4 Americans Is Putting Less Money Into Investments Due to Inflation. Here’s Why That’s a Problem

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It’s important to invest consistently. Read on to see what might happen if you stray from that strategy. 

At this point, inflation has been wreaking havoc on consumers for well over a year. And many people have been forced to make tough sacrifices to cope with it, like raiding savings accounts they’ve worked hard to build and cutting back on leisure spending.

A recent survey by COUNTRY Financial found that 28% of Americans are now putting less money into investments to cope with inflation. But that’s a move that could hurt you in a very big way.

You might miss out on tax breaks

It’s common to save and invest money for retirement in an IRA or 401(k) plan. And the money you put into a traditional IRA or 401(k) serves as a near-term tax break. But if you cut back on funding one of these plans this year, you’ll lose out on a larger tax break.

Imagine you put $5,000 into your IRA last year, but this year, you’re thinking of only putting in $2,000. That means you’ll be taxed on an extra $3,000 of earnings by virtue of that lower contribution.

You might miss out on growth opportunities

The more time you’re able to give your money to grow, the more wealth you stand to accrue in your lifetime. So, let’s say you would normally invest $5,000 in an IRA or brokerage account each year, but this year, you only put in $2,000. It’s not just that down the line, you’ll be short $3,000. You might be short a lot more money than that when you factor in missed investment growth.

The stock market has delivered an average annual return of 10%, as measured by the S&P 500 index, over the past 50 years. So let’s say your brokerage account or IRA delivers the same return. Let’s also assume you’re investing for retirement, and you’re 30 years away from that milestone. If you account for a 10% return on $3,000 over 30 years, it means that not investing that money this year will leave you more than $52,000 short down the line. That’s a lot more than just $3,000 in lost savings.

Do your best to invest

You may need to cut back on some types of spending this year to cope with inflation. But one thing you should really try your best to do is keep pumping money into your IRA or brokerage account so you can put it to work.

If money seems too tight for that, consider picking up a side job until inflation cools off. You can use that extra money to fund your IRA or brokerage account and avoid missing out on the chance to grow your wealth.

Remember, when you’re fairly young, you have a prime opportunity to take advantage of many years of compounded returns. And that’s an opportunity you don’t want to pass up. So it pays to do what you can to avoid having to cut back on investing — even if higher living costs seem to be backing you into a wall.

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