Friday, 20 July 2012

Inflation - How Dangerous It is?

Most of the Investors in India never understand what risk is and what is not? Everyone feel that fixed instruments are safe and not risky and keep saving money without understanding the big risk involved?

Fixed instruments are good for a short term parking of your money, not for long term!

This particular excel file will help you to understand, how the inflation will eat all your savings over a period of time, if you are happy with fixed returns!!!

1. At present, life expectancy in India is around 73 years and it will keep increasing due to medical advancement. People who are 45 years now can have the better chance to outlive 80 plus years.

2. We are living in a fast paced life, and everybody wants to retire at the age of 50 years or much before that and what they fail to understand is, all of us are going to live for another 30 years post retirement, either with little income or no income!

3. At present, most of the banks are offering 10% interest rate and effective yield is only 6.91%( highest tax bracket), whereas current inflation is 8%. Then the corpus will be eroded in less than 15 years and who will take care the next 15 years without income!!!

4. Risky investments like equity or equity mutual funds gave superior return over a period of 10 years plus. At present, there is no long term capital gain on your equity related returns.

5. What you believe SAFE is NOT SAFE, in reality. I think this excel file will help you to understand the shocking reality about inflation and how dangerous it is!, which eventually can destroy one’s saving just like that!

6. All over the world, over a long period of time equity is the one and only asset class which have the potential to beat the inflation convincingly.

7. Today, most of us fall under highest tax bracket and the number of people in that category keeps on increasing year after year.

8. I request you all to understand the risk vs return of the investment before you make any investment. Don’t carry away by the flashy ads or join the speculation waves created by Property and Gold!

9. Last, but not the least, Traditional Insurance policy will fetch 5 to 6% post tax return which is far lesser than inflation and most of us believe that investing in insurance is safe and good!

10. We all work hard to create wealth for our golden years. Everyone should make sure at least one should continuously enjoy what they have earned in their lifetime. Otherwise, it will not make any sense for the one who has put so much effort in their career to build this!!!

p.s. Hope this excel file helps you to understand inflation in a much better way!

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