Inflation Crisis And Its Solution

by khalid on 15/09/2011 · 0 comments

Inflation eats up savings and increases cost of living – everyone knows it. With petrol prices escalating every week, one needs to be prepared to deal with inflation and insure himself against it. The big deal today is investing and investing with a lot of care and vigilance to improve your current living standards. Frankly, it’s raining and you need an umbrella.

 First and foremost, you need to evaluate the return rates by deducting expected annual compound rate of inflation for the time period of your investment from the annual compound rate you are expecting from your investment. Take for an example you have invested in a fixed deposit in a bank which is promising 11% annual return rate for over next 5 years and you are expecting annual inflation rate to be 7%, your real compound rate of return will be 4%. Furthermore, if the investment has a 30% tax, the return will further go down to 0.4%. In simple words, this investment will be the worst option for you with really no profits. So, how can you improve your return? Take a bigger risk and invest in a mutual fund which has a dividend investment option. This plan is non-taxable and thus, you will get 4% return which is way higher than 0.7%.

 Now you see how an unthought-of investment plan can make you lose on a good opportunity. Therefore it is advised that you consider all the factors before making an investment decision – this way you can seriously improve your financial state.

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