While investments have the potential to grow your wealth, failing to account for inflation can erode the purchasing power of your returns over time. Inflation erodes the value of money, reducing what it can buy in the future. As a result, if your investments fail to outpace inflation, their real value decreases. To combat the impact of inflation, investors often turn to assets with a history of outperforming inflation, such as stocks, real estate, and commodities.
The impact of inflation on investment returns
- Thread starter Johnson2468
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As I have learnt in my business and finance class, this is indeed true. But how to calculate the inflation? That's the question and an issue. Inflation sure does cause a lot of problems for investors, because if too high, if could cause an economic regression. As it has with the crash of 1929.
With the current low interest rates, putting money into savings account cannot combat inflation. Your purchasing power will be reduced. To combat inflation, invest in higher return assets such as stocks, mutual funds or physical gold.
I must say that a country that is having high inflation rate with no supporting palliative measures will definitely suffer some challenges.
I stay in a country where the inflation rate is rising on a daily and people are really suffering. You see the prices of goods and services increasing with no plans to increase salaries. So, how do the citizens invest?
I stay in a country where the inflation rate is rising on a daily and people are really suffering. You see the prices of goods and services increasing with no plans to increase salaries. So, how do the citizens invest?
I think real estate is an investment option that would outpace the rate of inflation. That is unless the inflation deterioiarets to the level of hyperinflation, at which point it would be debatable to claim that a real estate investment can outpace the (hyper)inflation.
Interest rates offered by the banks are usually lowered when the country suffers massively. This is something that happened when the banks lowered the amount of percentage offered by the government as the government renewed the policy and made some changes.
Literally inflation means the increased in prices of almost all commodities in the market leaving the people with a low purchasing power due to the devaluation of the cash at hand. This would affect the investment in such a way that the return on investments would have no meaningful value as a result.
In simple terms, inflation or rising prices of goods will certainly have an impact on the prices of investment instruments, if inflation increases then interest rates increase, in certain instruments such as crypto and stocks prices will fall, but it's different if you invest in property or real estate if inflation increases then property prices will also increase, as well as the rent on property will also increase.
I think the inflation has its share too in the return on investments. With the ongoing inflation rates, the ROI are usually crumbled in the sense that it brings in a lowered value compared to the real amount due to the effects of the inflation in the capital market.
The money may still be the same that will be their interest but the value will decrease as you have said and they will not be able to use the money for something reasonable because the money has lost its value
After spending some time investing and loosing money, I've understood very well that some things are best learnt through experience. It's best to invest in assets that are not affected by inflation even if the returns seem to be lower than other alternatives
This is why I always feel good sometimes about the money that I have lost into investment helps me to know or recognize a real and also a fake investment scheme so that I will not fall for the scam again.
Inflation has a negative impact on investment returns. When inflation is high, the purchasing power of one's investment returns will be low. It is advisable to invest in things like real estate that can hardly be affected by inflation.
