Inflation is an increase in the general price of basic things over a a period of time. Essentially inflation 'reduces' into the value of your money. This is best explained by a mathematical formula know as "Rule of 72" which will indicate how much the value of your dollar will depreciate/or cost will raise with inflation. Eg: If inflation raises by 6% per year, costs will double in 72/6 or about 12 years. What cost RM1.00 today will cost RM 2.00.in 12 years time. The purchasing power of RM100,000 would fall to just RM17,000 Thus keep inflation from wiping out your nest egg by:
1. Save more by reducing your unwanted expenses.2. Invest the money wisely rather then just letting it stay in the savings account for a lesser than inflation rate return.
3. Purchase a property as it will increase in value to keep pace with inflation.
4. Invest in a business which will increase income and capital value over time.
5. Invest in equity or balance unit trust funds that give a return higher than the inflation rate.
6. Consider gold and other metal and commodities.
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ReplyDeleteVery good Rule72, we also use this to calculate how long will it take to double our investment if given certain percentage of expected returns?
ReplyDeleteYes, the same Rule 72 is used to determine the period, given a constant rate of return, to double the initial investment.
ReplyDelete