In all of our knowledge and thoughts about investment, wealth and money; inflation is one very important factor that doesn’t get nearly as much attention as it deserves. Perhaps that is because it’s scary, perhaps because it’s boring or perhaps because it’s not fully understood. However you feel about inflation, you need to be aware of it.
Knowing, thinking about and making plans to compensate for inflation, both today and in the future, can help us to better understand the true value of our wealth and assets. It can also help us to feel in control of our financial future.
For example, financial planning consultant Richard Cayne of Meyer International points out, “In the 1980s, savings bonds were paying 12 to 13 percent interest! That sounds great, doesn’t it? Doesn’t it make you wish you were living in the 80s and buying up lots of bonds?” Of course it does. “The part of that equation that you aren’t hearing is that inflation was 15 percent. So, with those bonds, you were essentially losing two to three percent of your investment each year!”
When put to you that way, you do need to be concerned about inflation.
What Richard Cayne often tells his clients about inflation is this: “You essentially have less money than you think you have. And the bigger your balances and portfolio, the more you stand to lose, so the more you will be stressed out by inflation.”
He goes on to put it in more real-world terms:
“Look, if you only have a few hundred baht in your pocket and are worried about buying today’s bread and milk, maybe inflation doesn’t matter to you. It’s when you have a lot and inflation eats away at it that it gets scary,” he said.
“That guy with 200 baht actually doesn’t care that much if today’s loaf of bread cost 22 baht but cost 20 baht last year. It’s when you have $10 million and look at a lifetime – at generations’ worth of increasing bread prices – that you realize you have less than you think and that inflation will march on, eating into your wealth, forever.”
He went on to say, “If coriander at the market goes from 7 bant to 9 baht this year, it doesn’t seem like much but it’s actually well over a 20% increase! The theory is that, if coriander is going up in price, your rent, car insurance and any big ticket items are also going up across the board. Now that’s something to be concerned about!”
So, should you be concerned? What can you do to stave off inflation?
Yes, you should be concerned. Especially if you have accumulated wealth. The only thing you can do to stave off inflation is to be earning money on your money. You need to be making a 2 or 3 percent return on your money each year just so that it has the same purchasing power as it did the year before.
How can you do that?
By making smart investments in trustworthy financial products. The best way to accomplish that is by consulting a financial planner such as Richard Meyer. A good planner can recommend the financial products that will get and keep you at your financial goals.
For further information about inflation and investment topics, Richard Cayne and Meyer International can be reached at (+66) 02 611 2561.