In the hustle and bustle of Mumbai city, time really flies fast. It had been five years since I met my parents. Happiness and the excitement of their visit to my new swanky apartment inundated me. As a token of love, I went on a shopping spree to make this Diwali special for them. I started with the sweets shop to buy their favourite ones. After I made my choice, I headed towards the payment counter. The digits of the bill appalled me completely. The sweets priced INR 100 five years back has now skyrocketed to INR 150. As I shopped other gifts, I realized that the silent killer – ‘Inflation’ had conquered my monthly budget.
What is inflation?
In simple terms, the term inflation is nothing but the depreciation in the purchasing power of per unit of currency. Talking about the price level of sweets, there has been an increase of 50% over five years. If we take an average, it is 10% every year. Therefore, each unit of currency now is able to buy fewer goods and services. What this means?? You need to save more to buy the same amount of goods or services. Inflation is a threat to investors as it represents the rate at which the real value of an investment and savings is eroded. For example, a long-term investment that gave returns of 4% before considering 6% inflation, actually gave a negative return (−2%) after adjusting for inflation.
The surge in the price of goods and services made me review my retirement plan. It dawned on me that I had not been considering inflation all this time while planning my long-term investments. Fortunately, I realized at an early stage to make up for the shortfall. I dialled to my financial expert to discuss the various ways of hedging the risks posed by my biggest financial enemy.
Is inflation suffocating your financial health? Here are the tips from the experts:
Invest in equities
Even risk-averse investors can benefit by allotting some part of their investments in the Indian stock market. Equities have been able to beat inflation over the long-term. So, it is advisable to stay invested in the market with long-term investment stocks.
Diversify your investment
Bonds provide stable income in form of coupon payments. But this coupon or interest payment remains constant until maturity. If inflation is not accounted correctly while investing, the purchasing power of the interest payments will dwindle as inflation rises. Hence, a strong long-term investment plan is the meticulous and proper fusion of bonds, equities, commodities and other investment avenues. Prices for commodities such as gold, silver generally rise with inflation. That is why, gold and silver investments are considered as a good hedge against inflation risk. You can also consider equity oriented mutual funds or SIP’s to reduce the risk on your portfolio. In case of insurance policies, the huge corpus funds at the end of the maturity may seem lucrative, but inflation will erode that value after 20-25 years.
Don’t try to time the market
Many investors fall prey to strategies that attempt to time the market. ‘Timing the market’ is always a game of loss. Concentrate on ‘Time in the market.’ Investing in stocks requires having a long-term view and not letting your emotions, hearsay, stock market tips or market rumours controlling your investments.
Income and inflation may not rise at the same rate, hence you should consider inflation while saving your monies. Calculate the expected major expenses, prepare a contingency plan, and understand the level of risk you and your family can bear. If you have any reservation about your financial plan, do consult a credible financial research firm/expert.
Monitor your Investments
It is imperative to check your long-term investments on a periodic basis. This comes into play during periods of high volatility, inflation and uncertainty in the India stock market. The investor needs to assess his plan and even re-align the plan as per his time horizon, financial goals and risk appetite.
How Research and Ranking can help you in insulating yourself against inflation?
If you want to cushion yourself against the biggest financial enemy i.e. Inflation and need advice on your long-term investments, you can consult R&R finance professionals. Research and Ranking is a trusted robo-advisory firm who advise various strategies for wealth creation. They assess the investors’ profile and advice multi-bagger stocks based on strong fundamental analysis of stocks. These stocks have a potential of generating the returns of 4-5 times in the interval of 5 years. They also monitor these stocks and advise on portfolio rebalancing, wherever necessary.”