Inflation And How To Beat It

“If your money isn’t growing, it is depreciating.”

How Inflation impacts the wealth?

Inflation is the decline of purchasing power of a given currency over time. It refers to a rising price environment of goods & services. Inflation is detrimental to long term investment portfolio return. Therefore, an investor must be cognizant of risk of inflation on investment returns. As Warren Buffett say you may feel richer, but you won’t eat richer in the context of Inflation.

This will especially impact the people who have majority of their money in saving account which usually offers lower interest rate.

For example, if any person have Rs.100 in saving account which fetch 3% return so at the end of the year, he will get Rs.103, while due to inflation of an average of 6%, the goods which was costing Rs.100 will be costing Rs.106 in the next year. Hence at the end of the year, the person will not be able to buy that good due to the deficit of Rs.3.

Unrecognised Risk

Most of us do not recognise the risk of inflation and the impact it is creating on our money. Even if this risk does not reduce your capital in physical term, it does reduce the purchasing power of your capital. In other words, the thing which you can buy today in Rs.100, you will not be able to buy in 10 years down the line because of the inflation.

Impacts savings

Over time, rising inflation is more dangerous to the savings in bank account. This is because prices of goods and commodities tend to go up in future and the money in savings account is not growing with the same pace as of inflation. In this case, you haven’t actually lost any money, but the worth of that money is decreased because inflation eats the value of that money.

Manage Inflation

Although inflation can be classified as systematic risk, but the fact is that we can mitigate this risk by actively investing the capital. The asset class should be classified which can comfortably beat the inflation. One such option is investing in equity market for longer term, as it not only beat the inflation but also earn higher returns for the investor.

The Brighter Mind Approach

We, at Brighter Mind, think that inflation as drag on investment returns and believe in mitigating the impact of inflation by delivering better inflation-adjusted return. We believe that inflation is a by-product of the growth in the economy. India, being an emerging country, have very robust economic outlook for the future. And in growing economy, it is normal to have high inflation as the demand rise due to increasing in spending. 

The fact about inflation is that it actually reduces the purchasing power of the money. Hence it is important to choose the asset class which can fetch higher inflation adjusted returns. We believe that equity is the only asset class which can fulfil this gap and beat inflation in longer term. 

Brighter Mind brings in the capability of identifying and investing in growth companies which possess great potential of inflation-adjusted investment return in the near future.