Rupakumar Pradhan, CFPCM, CWM®

Personal Financial Advisor

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Beat Inflation

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Beat Inflation

Beat Inflation
May 24
14:18 2019

Inflation!

Is it making any impact on your savings and investments?

Yes, inflation and taxes are two silent killer. They will make corrosive impact on your investments. Sometimes you may not able to know about it’s impact.

What is inflation?

Inflation is the increase in the prices of goods and services over time. It’s an economics term that means you have to spend more to fill your car petrol tank, buy a gallon of milk, or get a haircut. Inflation increases your cost of living.

Inflation reduces the purchasing power of each unit of Indian rupee.

As prices rise, your money buys less. That’s how it reduces your standard of living over time. Just think about corpus required for your retirement living cost say after 25 or 30 years.

One cannot ignore the corrosive impact of rising prices on investments.

For instance, a Rs 100 earned will be worth just Rs 93 after a year if it is not invested and the inflation rate is 7%. That is why one always has to be on the lookout for investments whose returns are more than the prevailing inflation rate.

India’s retail price inflation rate increased to 2.92 percent year-on-year in April 2019 from 2.86 percent in March and below market expectations of 2.97 percent. It was the highest inflation rate in six months, as food prices rose the most since July last year.

Inflation Rate in India averaged 6.15 percent from 2012 until 2019 (around 7 years), reaching an all time high of 12.17 percent in November of 2013 and a record low of 1.54 percent in June of 2017.

Without really knowing it, most people are investing to beat inflation. If you save your money by burying it in jars in your back yard or by stuffing it under your bed mattress, you will lose to inflation because the cost of living grows while the value of your money does not.

When looking at investments, always focus on what is the real return or the return net of inflation.

In my view, Equity is one asset class that helps you to beat inflation over a period of time.

Historically, if you hold on to your equity investments for 7 years, the probability of making a loss is zero.

Investing in equities over a long period is one of the best ways to stay ahead of inflation. Over the last 10 years, the Nifty has returned 16.7% a year compared to the 7% average inflation rate. Over last 38 years, Sensex has returned 16% per years. One can either invest directly or through mutual funds.

Another way of lowering the overall risk is investing via systematic investment plans or SIPs. The compounding impact of such investments over long periods will help you beat inflation by a comfortable margin.

Many of our clients convinced about this and hence are doing long-term investments through SIPs the meet their life goals be it buying a house, foreign vacation or retirement planning as per their ‘Comprehensive Financial Plan’.

Thanks to my clients believing onComprehensive Financial Plan’ concept and it’s power. However, their commitment and time around (4-5 hours of discussion) for the entire process of Comprehensive Financial Planning is helping them to move in the right direction. It helps them to know about impact of inflation on their financial journey.

Beat Inflation with a Portfolio of Mutual Funds

Building a portfolio of mutual funds is similar to building a house: There are many different kinds of strategies, designs, tools and building materials; but each structure shares some basic features.

To build the best portfolio of mutual funds you must go beyond the wise advice, “Don’t put all your eggs in one basket:” A structure that can stand the test of time requires a smart design, a strong foundation and a simple combination of mutual funds that work well for your needs.

Understand the basics of diversification with mutual funds

Diversification with mutual funds is more than just putting your eggs into different baskets.

Many investors make the mistake of thinking that spreading money among several mutual funds means they have an adequately diversified portfolio. However, different does not mean diverse. Be sure you have exposure to the different categories of mutual funds.

You can do it in several ways:

  • With Growth Stock Funds
  • Dividend Paying Stocks
  • With Foreign Stock Funds or Mutual Funds
  • Inflation Indexed Bond
  • Gold and Real Estate

Investing in a diversified mutual fund portfolio will not only keep your savings in the positive but also help you attain your financial goals, inspite of inflation.

My continuous mentoring is to make you take informed decision related to your financial goals and move accordingly.

A penny saved is a penny earned. Keep Investing! Beat Inflation!

“Inflation is taxation without legislation” ~ Milton Friedman

 

I am a CERTIFIED FINANCIAL PLANNERCM, CHARTERED WEALTH MANAGER®. For the moment, I have shared my experience growing up with you because it had a tremendous impact on how I do what I do.

If you have a question about your own financial situation please connect with me.  I’d be delighted to try to be of service.

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About Author

Rupakumar

Rupakumar

Mr. Pradhan has over 20 years of experience in financial services industry. He was previously working with leading Life Insurance Companies, Broking Firms, Distribution Company, Financial Planning Company and Health Insurance Company. He has cleared several NCFM modules & is also AMFI Certified. His expertise is in Comprehensive Financial Planning, Technical Analysis, Portfolio Management, Investment Advisory, Wealth Management & Business Development.

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