Inflation- can we beat it?
In recent times we are seeing a dramatic increase in inflation. The common man who lives on a budget is witnessing a nightmarish experience. The front page of every newspaper shows a rising graph of inflation. Since the inflation rate cannot be controlled by the common man it is important to find ways to beat it. The question thus arises is that is it really possible to beat inflation?
The answer is a simple YES! It may not be easy & requires some amount of sacrifice & patience but something like inflation which in no way is in our control can be beaten by right approach to financial planning. We at Fpguru.com will show you 5 ways in which you can beat inflation.
Equity- Invest for long-term to beat inflation.
It has been historically proven that nothing beats inflation as well as equity investments in the long run. Inflation can hurt stocks too but only for the short term. The BSE’s premier index SENSEX has given an annualised rate of return since inception of 18% p.a. approx. Inflation in the same period has averaged 7% p.a. If you had remained invested in the index for same period you would have beaten inflation by a mile! The key is to remain invested over a longer term & invest in blue-chip & good quality mid-cap stocks or mutual funds with good track records.
Debt instruments- Choose instruments wisely.
Debt instruments such as certain Corporate Deposits & Debentures of Good companies, post-office schemes like Public Provident Fund give returns better than inflation. These are important when one is close to retirement. Retired senior citizens can take benefits from special senior citizens rates. Even Bank Fixed Deposits offer these. PPF offers you 8% tax-free. Another scheme which most people forget is their Employee Provident Fund. A scheme which is currently giving 9.5% p.a. & which in the past has given 8.5% p.a. This is also tax-free. Many people can beat inflation with these products.
Gold- A hedge against inflation.
Gold is not an asset which can beat inflation in the long run but it surely an asset which can match inflation over time. Gold price rises drastically when in any dire situation comes up in the world. Recently too gold prices shot up due to the worldwide financial crisis. Thus having some gold in your investments acts as a hedge against inflation. Investment in gold can be done in many ways such as buying gold bars, ornaments, gold mutual funds, gold ETF’s, etc.
Real Estate- Double benefit.
Having an additional property apart from your residence is a boon when inflation is rising. Real estate is usually an appreciating asset which can give good returns in the long run. We consider property as double benefit because it will not only have capital growth but also rental income if the property is in a prime location. Rents go hand in hand with inflation. Investments in real estate can be done by buying land, plots, second home, business properties etc. Ideally if capital growth & rental income is the target, you should buy a second residential property or a commercial property.
Standard of living- Do not go over the top.
It is very important to follow a budget or a spending plan. Essential household expenses cannot be comprised on but there can control on spending for inessential things. Do not eat up your savings for present luxuries. The fact is that we are moving towards a very consumerist society bent on instant gratification. This will hurt us more. Inflation first hits items which we buy on regular basis so one should learn to make smart purchases. With rising inflation one should keep their priorities straight. Inflation is not under your control but your standard of living is. It is better to have a decent standard of living which can be sustainably maintained than a very high standard of living which leads to no savings.
Do work on the above points & you surely can beat inflation in the long run. All it requires is discipline & patience. So take the required action today.
By Namrata Shah.The writer is working with FpGuru.com as a para-planner.
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really appreciate it!!!
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