Saving money can be just as difficult as making it. It is a well-known fact that the value of money tends to depreciate over time. This suggests that in a few years, the amount of products available for $100 would decrease.
Inflation, or the price levels, reduces the value of capital over time, making it necessary to beat inflation with your savings.
What Does It Mean to “Beat Inflation“?
To beat inflation, an expenditure must generate higher returns than the rate of inflation in the economy.
Your returns would be nullified if the increase in price levels is greater than the returns you are receiving.
Assume you put $100 into an investment that yielded 4% for the next year. Your investment now has a value of $104.
Assume, on the other hand, that the economy’s inflation rate is 5.5 percent.
Your return on investment is lower than the rate of inflation, effectively canceling out the gains you made.
Every year, the buying power of money decreases dramatically due to a variety of factors.
Inflation is the term for this economic phenomenon.
Here are some ways to beat inflation:
BUY EQUITIES OR AN EQUITY MUTUAL FUND:
One of the easiest ways to remain ahead of inflation is to invest in equities for a long time. The Dow has returned 16.7% a year over the last ten years, compared to a 7% average inflation rate. Investing can be done directly or by mutual funds. Small investors should consider investing in mutual funds, which are professionally run.
INVEST IN STOCKS THAT PAY DIVIDENDS:
Investing in stocks that pay high dividends is one way to remain ahead of inflation. The interest rate paid by banks is usually much lower than the rate of inflation.
Dividends, like inflation, can be measured on an annual basis. Dividend yield is calculated by adding all dividends paid over the course of the year and dividing it by the stock price. The yield must be higher than the annual inflation rate.
GOLD AND REAL ESTATE ARE EXAMPLES OF ASSETS YOU CAN INVEST IN:
Gold is regarded as an excellent inflation hedge. According to market experts, real estate can also be a viable choice if a large amount of money is available. However, these investments can only account for a small portion of your overall portfolio.
GEOGRAPHICAL DIVERSIFICATION:
The distribution of assets is crucial. One way to look at this is as an opportunity to diversify internationally. Your portfolio will become more resilient and less vulnerable to domestic instability and inflation as a result of this.
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