scorecardresearchWhat investments you can make to ensure that inflation doesn’t ‘swindle you’?

What investments you can make to ensure that inflation doesn’t ‘swindle you’?

Updated: 05 May 2022, 11:50 AM IST
TL;DR.

We explore the investments one can make to ensure earnings stay ahead of inflation

Inflation gradually eats into your money. Ace investor Warren Buffett recently said inflation swindles everybody,

Inflation gradually eats into your money. Ace investor Warren Buffett recently said inflation swindles everybody,

One could buy a litre of toned milk for 24 in 2010. Now one has to pay 49 for the same. This is more than double the price. Significantly, petrol prices which were around 28 in September 2000 have touched 105 a litre in Delhi. 

Likewise, a plate of noodles was sold for 25 a decade ago, but now sells for 100. A similar phenomenon can be seen in financial investments too. Gold which was available for 4,400 per 10 grams in 2000 is now sold for 52,720.

In other words, what you can buy for 100 today, you will need 106 a year later if inflation is 6 percent. And two years later, you will need 112, and after three years, the same product will be sold for around 119.

To put it simply, inflation gradually eats into your money. And as Warren Buffett said inflation swindles everybody. So, we explore a slew of investments one can make to beat inflation.

These are the investments you can make to beat inflation:

 

Index funds: To become a part of stock market rally, one of the easiest ways out there for a retail investor is to buy index funds. These funds have allocation of stocks in the same ratio as a broader index such as Nifty 50 or BSE Sensex. So, when the index rises, your portfolio will rise in the same proportion. So, chances are that you will be able to beat inflation.

Debt Investment: There could be occasions when relying only on stocks to beat inflation can become risky.

So, it is advisable that some part of your portfolio should be allocated to bonds. Ideally, this could be in the 60-40 ratio which implies 60 percent of your investments is allocated to equity whereas the remaining 40 percent to debt.

There is no denying the fact that the debt investment offers a fixed rate of interest, it can be a hedge against the risky investments in equity.

Gold: Only a few would dispute the fact that gold manages to beat inflation in the long run. On the top of it, it is a liquid asset and has high degree of trust among Indian families. Some experts argue that gold investment is not fool proof because one loses money in making charges and some cost is incurred in storing physical gold in lockers, etc.

Those who are apprehensive about storing physical gold can explore the option of buying gold ETFs which are traded in the stock exchange and track physical gold. So, with gold ETFs, one can enjoy the perks of gold investment along with flexibility of tradable stocks.

Other saving instruments: One can invest in NPS, and even in PPF, as they post higher returns than the rate of inflation.

National Pension Scheme gave reasonably good one-year returns (on Tier 1) i.e., anywhere between 7.8 percent to 11.8 percent based on the investment manager you chose.

On PPF also, the current rate of interest is 7.1 percent, which is higher than the inflation, although marginally.

Article
These are the investments you can make to beat inflation.

Cryptocurrencies: If you are Warren Buffett fan, then you will not be excited by this new asset class as he said he wouldn't buy it even for $25. However, if you are among the likes of Peter Thiel for whom Buffett is a sociopathic grandpa, investing in cryptocurrencies can be a safe and timely investment to not only beat inflation but to render it totally irrelevant.

First Published: 05 May 2022, 11:50 AM IST