The current rate of inflation is at historically low levels. For savers and investors the most important objective for your investment is that the rate of return you receive should at least be greater than the rate of inflation. If it’s not, then each year you are getting poorer. You may not notice it, but you are.

This short article explains how by investing in great companies that pay a good dividend, savers and investors can protect their wealth and secure a rate of return that under normal circumstances exceeds the rate of inflation.

1.     What’s Inflation?

 ‘I don’t mind going back to daylight saving time. With inflation, the hour will be the only thing I’ve saved all year’.

                       Victor Borge.

Inflation is, put simply, the rate at which prices increase, or to put it another way, what you can buy with a pound or a dollar is determined by the rate of inflation. It is all about the purchasing power of money, and that is why it is essential that the return on your savings and investments exceeds the rate of inflation since if it doesn’t, you are in effect becoming less wealthy over time.

The rate of inflation in the UK is currently considered to be around the 3% mark. So to avoid becoming less wealthy your savings and investments should exceed 3% in terms of the return on your investments.

 2.     Shares Pay Dividends

Investing in great companies that pay dividends can be one way of securing a good return on your investments that exceeds the rate of inflation. The FTSE 100 includes many companies that are currently paying a dividend yield in excess of 3%, and in many cases in excess of 5%, far higher than any normal savings account.

Of course buying shares will not be for everyone, and you should always seek out independent financial advice to fully understand what might be the best investment vehicle for you, but for those who understand the risks involved and who are familiar with the concepts involved in making money from stocks and shares, with interest rates at a historical low this could be a great time to invest in shares.

Jamie E Smith is the author of Making Money From Stocks And Shares

This content was provided by one of our users, Jamie