Inflation is a potential threat to your savings and income.
It is capable of reducing the purchasing power of your money over a period of time.
In other words, It is the constant increase in the price of goods and services in a country or region.
As inflation increases every dirham you own, buys a smaller percentage of goods and services, when compared to the past....
It is possibly one of the least understood investing risks, also defined as negative compounding working relentlessly day and night.
Try and remember the price of atleast 5 important goods or services 5 years back.
Compare with the prevailing prices today...
Share your findings in the comments section below...
As you would have noticed from the above exercise, Inflation will eat your savings for breakfast, lunch and dinner if not wisely invested.
The Inflation Calculator
The following calculator will show the impact of inflation in forthcoming years on the purchasing power of your income and savings
How to beat inflation?
In order to beat inflation, your savings should be invested to grow at a rate higher than the inflation of the country you want to use your money in.
The growth achieved by an investment, in excess of the prevailing inflation is called Real Return. For Eg : if a particular investment earned a return of 3%, while the inflation was 2%, then the actual return (real return) would be 1% (3%-2%).
Inflation in UAE was 4.37% in 2015; according to the article in gulf news - http://gulfnews.com/business/economy/uae-s-overall-inflation-to-average-4-37-in-2015-1.1596743
In India it stands at 5.77% in 2016.
For Eg : If an expat intends is saving for retirement in India, his savings should atleast fetch a return higher than 5.77% every year, to make sure that the purchasing power of his savings does not diminish.
The following are some of the options, you can invest your savings in order to achieve Real returns
- SIP Investment in International Funds
- Lumpsum Investment in International Mutual Funds & Capital Guaranteed Investments
Investors should factor in realistic inflation rates, when planning to invest for their future and focus on investments capable of providing Real Returns.
To know more about achieving Real returns, Arrange a free initial meeting with me.