Unlike tax and investment fees, inflation rates is on a different levels. Because nothing you can done to decrease or avoid inflation. In other words, inflation is untouchable. They will always be there every year, eating your saving away slowly without you even noticing. If you did not do something, you going to get hurt. Like an old saying goes “what you don’t know will hurt you”. Well, now it’s time for you to stop it once and for all.
WHAT IS INFLATION?
Inflation means a sustained increase in general price level of services and goods in an economy (or country) over a period of time. Usually per one year. It results in loss of value of currency of one country. For example, if you have $14000 savings in your bank account, the amount could decrease its value to less than $14000 even if you did not use the money at all. This is where the inflation is sucking away your savings.
For a short time, usually it is insignificant. But, for a long time, the results could be significant. Your numbers would keep on decreasing and when you started to notice it, it is already too late. This is why we should act now to prevent this from ever happening to us. However, since inflation does not affect in a short term period, the future investors mostly does not bother to care about inflation which is a bad thing to do. As a Smart Investor we should avoid this.
How Much is The Inflation Rates?
- The average inflation rate per year are 2.4% per year according to Index Funds: The 12 step Program for Active Investor .
- Meaning that, your investment or your savings account will be deducted by this rates every year. There is no way you can avoid the rates. Not even the billionaires.
- But, it is totally up to you. You can change it or you can let them eating up your money.
The Disadvantages of Inflation.
1. Inflation is not a small matter.
- Because over the long haul it can decrease your purchasing power as a buyer.
- Your money will keeps on deducted by the rates throughout the years. For a long haul, your money will be much lesser than it is suppose to be.
- If you let this happens to you, it is like you are letting someone stealing your savings.
2. Inflation can increase the general price of goods and services.
- Think about this, your money had been decrease in values but the price of the services and the goods are kept increasing. Surely this is not a good sign.
- But, it does not matter. Because no one can stop inflation.
- Which means, inflation is the results of supply and demand for money.
- To put it simple, when the more dollars are produced, the more it will become less valuable.
- Therefore, it makes the general price for the goods and the services increased to combat the less valuable dollars.
3. Inflation could discourage investment and savings.
- Why? Because it can made peoples become afraid of losing their money.
- Since we cannot avoid inflation rates, why should we save and invest right?
- Unfortunately, this is a bad thing to do because where there is a risk, there will always be a fortune. Remember that.
- We live in a world fills with risk. Even live itself is risky. Instead of avoiding it, why not face it heads on?
- The common sense of what we should do as a Smart Investor is to outpace the inflation rates every year.
- This is what the millionaires and the billionaires had been doing for a long time.
- The best thing we can do is by imitate them by investing a large portion of your investment portfolios in stocks index for as long as possible.
- This is because stocks indexes had been shown proven records to produce much more better rates than bonds ever did.
- However, stock tends to have a higher risk than bonds and it helps a lot outpacing inflation rates. You can even say that buying stocks is the antidote for inflation.
- In addition, you should focusing on passive investing not active investing.
- Meaning that, you earn your profits from investing through market returns not beating the markets such as stock picking and market timing.
In a nutshell, inflation is not insignificant like the bankers or the investment medias keeps telling you on. Sadly, most of them believes it and because of this, so many future investor had been fooled. But not anymore and it ends to day. You have become a Smart Investor now.You road to financial freedom had just begun. And the trick is very simple, just start to invest as early as possible so that you can outpace the inflation rates. Then you’ll be fine.