QUESTION: Inflation and real yield: why does cash lose value and what to do about it?

Liquid funds or plain cash inevitably lose their purchasing power over time due to inflationary processes, which makes keeping all savings in cash a knowingly unprofitable strategy. Money must work and generate a yield exceeding price growth; otherwise, every year you will be able to afford a smaller volume of goods and services for the exact same amount.

For "Inflation and real yield", it is useful to calculate a baseline scenario and a stress scenario featuring a sharp surge in inflation or a drop in asset values. This approach allows you to foresee potential threats to your personal budget in advance and prepare your portfolio for unfavorable market cycles.

Be sure to set aside a financial reserve amounting to ten to twenty percent of your total capital for unforeseen circumstances, so you do not have to sell investment assets at an unfavorable price.

Decide in advance which exact expenses or regular investment contributions you are ready to cut first in the event of a macroeconomic deterioration. A clear action plan for a crisis helps maintain composure and protects long-term capital from spontaneous and destructive decisions.