Are You Protected Against Inflation by WealthEffect Staff     A loss of purchasing power     The tax of the weakest government     Protecting yourself     1. Inflation is defined as a general rise in the price of goods and services. As prices rise, purchasing power is reduced. If, for example, inflation is 100% and prices doubles on average, the value of each dollar has been cut in half. Now, you need twice as many dollars to buy the same things as before.     2. Inflation has been described as "the tax of the weakest government" because a country's leaders can raise money by simply printing more for themselves. Taxes aren't raised, but the citizens are worse off — whatever cash they own is now worth less. This is a matter of supply and demand: more money is chasing the same amount of goods/services, driving up prices and reducing purchasing power.     3. You can protect yourself against inflation in several ways. If you buy insurance, you can purchase a rider which increases your benefits in line with inflation. Owning stocks instead of bonds provides some protection against rising prices and falling purchasing power. Borrowing money from friends who don't charge interest is a wonderful way to take advantage of inflation (and friends).     Return to Insurance