Suze Orman Believes This One Investment Type Can Help You Dodge Inflation. Here's Why

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  • Suze Orman believes investing in the stock market can help you dodge inflation.
  • Inflation eats into long-term returns, and stocks grow long-term returns.
  • Diversify into 25+ stocks and hold for five or more years to earn the most money.

According to USDA data, egg prices have halved since the beginning of this year, returning breakfast omelets to the menus of hungry Americans. But the Consumer Price Index pegs general food inflation at 8.5%. If groceries feel pricey, well, they are.

Finance guru Suze Orman recently tweeted that investing in the stock market is a smart way to dodge inflation. It's a stance she's held firm on for quite some time. Here's why.

What is Suze Orman's viewpoint on stock investing?

According to Orman, cash -- in savings accounts, short-term CDs, or money market deposits -- is excellent for an emergency fund (Orman loves her emergency funds). But long term, folks earn more by investing in the stock market. That goes double when inflation runs rampant.

Inflation eats into long-term savings. The more the dollar inflates, the less your savings are worth. You can combat inflation in three ways: (1) by shoving more money into your savings account, (2) by spending all your money the moment you receive it, or (3) by earning high returns by investing in the stock market.

Orman advocates you invest a portion of your savings in the stock market.

The stock market provides high-enough returns to cancel the harmful effects of inflation. The stock market has returned an average of 10% per year over the past 50 years. That's more than 100 times the average savings account return (0.07%).

The math is straightforward. But there are legitimate reasons not to take Orman's good advice.

There are risks to investing in stocks

The stock market is volatile. The S&P tumbled 12% in a week at the beginning of the pandemic. But just as suddenly, it bounced back, soaring to record highs at the beginning of 2022 before declining to present levels. If the stock market were a plane, it would be grounded. Permanently.

To take advantage of the market's inflation-beating returns, investors must be prepared to invest long-term and hold through times of turbulence. If you anticipate withdrawing money within the next five years, consider putting it into something more liquid (e.g., your favorite money market account).

It wouldn't do to withdraw invested money while the market is down. A high-yield savings account is safer and can lessen inflation's influence over your money. But the best way to combat inflation with stocks is to develop a long-term investment strategy.

Inflation-proof your stock portfolio

The best way to combat inflation is to stick with a strategy that'll earn you high returns. You can do so by sticking to tried-and-true long-term investing strategies:

  • Diversify into 25+ stocks. That way, you maximize the chance of making money (and minimize the possibility of losing it).
  • Automate investments. You can set up automatic investing through your favorite investing app. It makes sticking with an investing strategy easy.
  • Stick with what you know. The more confident you are in your investments, the less likely you'll panic sell during a downturn. It's okay to stick with what you know!

These days, there's an app for everything. Brokerages are no exception. The best stock brokers make investing simple and profitable. Consider taking Orman's advice and investing in the stock market to dodge inflation. But to make the most of your investments, stick to an investment strategy and hold for the long term.

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