Invest Ace

#4/52 Inflation Back in 2008, you needed to have 30 Million Zimbabwe Dollars to buy a sausage sandwich. In 2018, a coffee date in Venezuela costed a mere 2 Million Bolivars. Not that these countries have a rich population, but the inflation rates peaked making citizens lose their purchasing power with increased cost of living. Inflation can be defined as increase in cost of goods and services mainly due to higher demand vis-a-vis supply. Supply shocks (eg. Oil prices shot up due to Russia Ukraine conflict) also result in abrupt increase in prices of commodities. Is Inflation always bad? Not really. A small and steady rate of inflation is good for economies. When prices rise moderately, they tend to drive consumption increasing the GDP of the country. How does it affect your personal finances? - Reduces the cost of currency. Value of Rs.1 today is more than the value tomorrow. Milk priced at Rs. 15/litre in 2000 and risen to Rs. 54/litre today. - You need to account for inflation while planning finances for you goals. - Retail inflation calculated as CPI is an average and can change for your city and area. - Investment instruments should be selected carefully which have better returns beating inflation post tax. - Historically, avenues like Real Estate, Commodities and Value stocks have provided a hedge against inflation. Hence some part of your portfolio should be allocated to these. Best way to tackle inflation is to account it in your financial plan. Let your Lakshwadweep trip not end up in Lonavala. Consult your Financial Advisor to know Real rate of Return of your investments. Invest Ace #personalfinance #mutualfunds #inflation