Economists have warned for the past four years now that serious inflation is on the way. The massive government spending intended to stimulate the economy, they argue, will result in each dollar being worth far less. Fortunately, we haven’t seen anything like that as yet, and in fact there’s little sign of high inflation on the immediate horizon. The Consumer Price Index, a key measure of inflation, was 2.7% in March. Since the long-term historical average for inflation is about 3%, that’s nothing to be alarmed about—especially since March’s inflation figure was actually down from February’s 2.9% rate.

That’s all good news. But the truth is that even a little inflation, compounded over the years, can really crimp your buying power. That, of course, is particularly concerning for retirees and others who are on fixed incomes: They can’t simply ask for a raise in order to keep pace with the cost of living.

Let’s look at how much an inflation rate of just 3% can strain your finances. Suppose that you have an annual household budget of $50,000. After 10 years of inflation, $50,000 won’t even come close to covering your bills: You’ll need more than $67,000. After a decade of 4% inflation, you’d need $74,000 a year; if inflation were 5% for 10 years, your bills would be more than $81,000.

This corrosive effect that inflation has on your money is why it’s so important to include inflation-fighting investments in your long-term investment portfolio.

Inflation-fighting investments run the gamut, and can be either stocks or bonds. One popular inflation hedge is TIPS, or Treasury Inflation Protected Securities. TIPS pay a fixed rate of interest, but their principal is continually adjusted to help investors keep pace with inflation.

Another asset class that can help you face down inflation: blue-chip, dividend-paying stocks (think Exxon Mobil or Union Pacific). The best blue-chip companies pay high and increasing dividends, which can be a perfect way to combat rising prices.

There’s no single recipe for how to construct an inflation-protected investment portfolio, of course. That’s because every investor has different asset levels, different goals and different levels of tolerance for risk. What all my clients do have in common is this: We’ve factored inflation into their long-term financial goals, and we’ve invested their assets appropriately.

After all, even if inflation remains at its current level, it’s still a significant threat to your long-term financial goals. Feel free to get in touch with us if you’d like to further discuss inflation and how your portfolio is built to guard against it.