While many investment plans promise attractive returns over decades using catchy phrases like ‘make Rs 10 crore in 20 years by investing Rs 10,000 every month,’ the potential impact of inflation is often underestimated.

An X post highlighted the issue of inflation diminishing the purchasing power of money, which compels individuals to earn and invest with caution.

INFLATION REDUCES BUYING POWER OVER TIME

Inflation is a persistent economic phenomenon that reduces the value of money over time. The post reflected that inflation has the ability to erode the buying power of money every year, making things more expensive and pushing people to keep earning and investing wisely.

According to the post, assuming an annual inflation rate of 7%, Rs 1 crore today would be equivalent to Rs 50 lakhs in 10 years, Rs 36 lakhs in 15 years, and Rs 25 lakhs in 20 years. This underscores the importance of considering inflation in any long-term financial planning.

WHY DOES INFLATION HAPPEN?

The reason behind the inflationary trend is often linked to the monetary policies of governments and central banks, which can involve increasing the money supply.

Since 2018, global money printing has averaged 8% per year, contributing to inflationary pressures. This impact on savings means that traditional investment strategies might not suffice to maintain one’s wealth.

TRADITIONAL INVESTING MAY NOT BE ENOUGH

To safeguard against inflation, the need for ‘nuanced investing’ in assets that can outpace inflation is suggested in the post. By choosing investment vehicles wisely, individuals can better shield their wealth from the erosive effects of inflation and work towards sustainable financial growth.

This approach requires a keen understanding of market trends and a willingness to adapt strategies as economic conditions evolve.

Moreover, understanding the broader economic environment and how various factors such as interest rates and government policies affect inflation is crucial. By staying informed and flexible, investors can make informed decisions that align with their financial goals. This proactive stance not only helps in preserving wealth but also in potentially growing it beyond the inflation rate, securing a more stable financial future.