This Is the Best Way to Cope with Inflation, According to Suze Orman

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  • Inflation recently reached a 40-year high and many people are struggling to deal with the elevated costs.
  • Finance expert Suze Orman advises people to invest their extra cash rather than put it in savings to help fight inflation.
  • Historically, the stock market has a higher rate of return over the long run than any other investment type.

If you're struggling with today's high prices, this advice could make all the difference.

Inflation recently reached a 40-year high, leaving many people struggling to deal with elevated prices for goods and services. If you're busting your budget or even reaching for the credit cards to pay for everyday expenses because prices have gone up so much, you are not alone.

Since inflation makes everything more expensive, your money -- including your paycheck and your savings -- isn't buying as much as it did before. And it can be really hard to figure out how to deal with this difficult situation. The good news is, finance guru Suze Orman has some advice on the single best way to cope.

This is what Suze Orman says to do when prices are rising rapidly

According to Suze Orman, "Stocks are the best way to cope with inflation."

This may come as a surprise to some, especially as the stock market has not been performing well lately and many people have seen their investment account balances fall. And Orman acknowledges that: "It’s not easy watching investments lose value." So, those who are stressed about buying or owning stocks right now aren't being irrational.

Still, despite the fact that you may be worried about what your portfolio is doing, Orman says buying stocks is still absolutely the way to go. And she provides a compelling argument for why that's the case.

"Over decades, stocks have delivered the best real returns," Orman said, going on to explain that stocks have beat both bonds and cash in terms of return on investment (ROI). Orman warned that neither of those other asset classes are meant to provide returns exceeding the inflation rate. "That’s the job of stocks in your retirement account."

The "real returns" she's referring to are the gains or losses an investment experiences after inflation is accounted for. She gives the example of a situation where inflation is at 3% and you make 10% on your money. Your real return in this case is 7%. And she explained that, over the past 50 years, even during market downturns, the S&P 500 gained 10.7% and had real returns of 6.5% after inflation.

As these numbers show, if you had stuck with buying stocks during past downturns, your brokerage account balance would still have ended up growing in real terms, leaving you richer even after accounting for inflation. And there's every reason to believe that will be the case during this current time of rapid price increases.

Should you listen to Orman?

When it comes to protecting your money from losing ground, Orman is absolutely correct that stocks are the best way to do that. The interest rate on almost all other investments that present a reasonable level of risk is going to be much lower than the rate of return on stocks -- and you can't afford to accept a very low (ROI) when inflation is up so much.

So as long as you understand how to invest and are committed to investing for the long term -- not bailing at the first sign of trouble -- you should listen to Orman and consider buying stocks with money you can spare.

If you have funds you aren't going to need to use in the next two to five years, putting them into the market is almost assuredly the best thing you can do so your hard-earned cash doesn't lose its value.

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