Inflation erodes savings by reducing what a fixed amount of money can buy over time – a dollar that buys less next year than it does today. Cash and low-yield savings accounts are especially exposed, since their value doesn’t adjust for rising prices at all.

Assets that have historically helped offset inflation over long periods include stocks (companies can often raise prices along with inflation), real estate, Treasury Inflation-Protected Securities (TIPS, which are explicitly indexed to inflation), and precious metals like gold, which has periodically served as a store of value during high-inflation stretches – though none of these are guaranteed to track inflation in any given year.

The practical takeaway isn’t to abandon cash entirely (some liquidity is still necessary) but to avoid holding a large majority of long-term savings in assets with no inflation protection at all, and to diversify across several asset types rather than betting on just one.