Inflation is the Biggest Enemy of your Investment

in LeoFinance2 months ago

Traditional investment consists of keeping your money in the Bank, or a Fixed Deposit or a Recurring Deposit. But the problem is the interest rate these investments gives you and then the interest is taxable if you income is under taxable range.

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PC: Pixabay.com

When I have started my investment journey, the only investment I knew was Fixed Deposit and Recurring Deposit. I remember my first investment was Rs 1000 per month in RD. Then slowly when my pay-cheque increased as well as when I started learning about more and more investment, then I came to know different investments. As I was quick enough to know about other investment but most of the people are not.

Still they are relying on keeping the money in the Fixed income source. Though its not a bad thing if you know that the money you are keeping is only for a year or its an emergency fund. But if you are keeping that money in Fixed Deposit thinking of long term then you have to worry.

Why worry because the interest you get from this investments will be taken away by the inflation.

What is Inflation

According to Investopedia

Inflation is the decline of purchasing power of a given currency over time. A quantitative estimate of the rate at which the decline in purchasing power occurs can be reflected in the increase of an average price level of a basket of selected goods and services in an economy over some period of time. The rise in the general level of prices, often expressed as a percentage, means that a unit of currency effectively buys less than it did in prior periods.

This means Rs 100 now will be less than Rs 100 in an year, because whatever you are purchasing from Rs 100 now, you have to pay extra to get the same item after an year or so. And that's why it is said that the interest you are getting from the FD will be eaten up by the inflation.

So what should we do is to diversify as much as possible so that if any class outperforms or underperforms, your investment plan or the returns will not suffer. That means start investing by creating an emergency fund which you can keep in FD or Low risk mutual fund, because in this case we need the capital protection instead of wealth creation.

Next think about your risk taking ability and start investing in Crypto, Mutual Fund and Direct Equity and see that in longer run you will get more than the inflation.

Let me give you my example, I have started investing in Mutual fund 4 years back and thus continuously investing in 3-4 funds. As you can see from the below graph about the total investment. I am getting a interest of 15% and thanks to 2020 for that. Even if I would have got 12% that means I almost 5% more than the Inflation and that way I am creating the wealth.

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PC: Groww

Other thing is the Crypto, if you would have HODL your investment from the year 2018 then again I would like to congratulate you because your investment would have doubled or tripled or even became 10 times but the main thing is to stay invested for a longer duration. I cannot play the game of trading daily, but I know if I will keep the Bitcoin for long it will always shine just like Yellow Metal, that's why it is called Digital Gold.

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