Saturday 7 July 2012

No "Automatic" safety against Inflation - You need to create it!

No "Automatic" safety against Inflation - You need to create it!

Many of us in India (especially those above 50, who had perhaps started earning in the late 70's or early 80's) tend to feel confident about investing in bank and corporate deposits (as against equity shares or equity mutual funds). And think that they can protect themselves (by and large) against inflation.

But is all that equally valid for the next generation?

Wrong.

Especially wrong for those who are in their 20's & 30's today. Chances are bright that India will become part of the "developed" economies in the next 10-15 years. And when that happens, the pace of growth will taper off to levels presently prevailing in Europe / US. And that will be accompanied by low - very low interest rates.

By the time YOU (the guy/gal who is presently just about finishing your formal education or starting out on your career) reach your middle age, say by the year 2025, watch out for the big monster of inflation:

And if you thought that depositors will continue to get some returns on their deposits, look at Denmark today:

The "official" inflation may continue to remain low. However, commodity inflation is set to grow with increasing prosperity and Service costs are also set to grow due to scarcity of skillsets - After all, if you as a software engineer or a lawyer or a doctor wish to earn ever increasing incomes, so will other service providers! This will imply an ever-increasing cost of living even to maintain your standard of living. And, you're likely to aspire to continuously improve your standard of living!

You'll continue to want to change your mobiles every 6-12 months, your car every 3-5 years, your washing machines, TV sets, etc. every 5 years, etc.

And, thanks to your increasing health-consciousness, you're likely to live for at least a decade more than those belonging to your parents generation.

How are you going to protect yourselves against inflation?

You can't expect simple bank deposits or government securities to provide you that protection.

You need to endeavour to create that protection.

The onus is on you.

You have to wake up, and wake up now.

Watch this space for tools and techniques.

Hopefully, I'll have the time, inclination and ideas to post appropriate info for your consumption!

Regards,

N


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