While the effect of Imus' departure on CBS's stock price may be an interesting discussion to have with your Stock Market Game students, we're going to steer clear of the topic right now. Last week ended with a Friday the 13th after all. We'll focus on the Fed and inflation instead. U.S. stocks took a tumble on last Wednesday as minutes from last month's Federal Reserve meeting hinted the need for more rate hikes, adding to worries the economy is heading for a period of inflation combined with slow growth.
At the Federal Open Market Committee (FOMC) meeting in March, policymakers stated the predominant concern remains inflation. The minutes indicated that members of the FOMC judged that "the combination of generally weaker-than-expected economic indicators and uncomfortably high readings on inflation suggested increased downside risks to economic growth and greater uncertainty that the expected gradual decline in core inflation would materialize."
Those new to investing and The Stock Market Game program may be wondering how inflation affects one's investments. Inflation is the rate at which prices rise, and over time can erode the purchasing power of your money. For example, you can buy somewhat less with a dollar today than you could have bought five years ago, and significantly less than you could have bought fifty years ago. So if you have the same amount of income each year, your purchasing power gradually shrinks.
Many factors influence the rate of inflation, from overall economic conditions and consumer spending to monetary policy and the political outlook. Investing can help you offset the eroding effect of inflation by providing a rate of return on your money that's higher than the rate of inflation. If you expect your portfolio to be worth more tomorrow than it is today in terms of buying power, you'll need to invest in securities that have a good chance of outpacing inflation, but picking them is easier said than done.
To further this discussion with your Stock Market Game students, be sure to check out the
What Causes Stock Prices Change?
lesson in the
. Students will be able to discuss how inflation affects stock prices as well as analyze and interpret market indices, which reflect the change of stock prices broadly. The lesson is accessible by clicking "Lesson Sequence" and then selecting "Display a Complete Outline of All Lessons."
Also, we mentioned last week that TheStreet.com has a helpful
for stocks based on the A through F grade scale.
To learn more about the investment terms used in this article, simply click a term below to see how it's defined in TheStreet.com University Glossary:
the Fed (Federal Reserve System),
Federal Open Market Committee (FOMC),
This article was written by a staff member of The Stock Market Game.