Africa-Press – Eritrea. Currently, many of the western economies are facing the menace of high inflation. Each country has its reasons for high inflation and some of them even attribute their high inflation to various geo-political reasons including the infamous Russia-Ukraine war.
Whatever the case, “Inflation” is a buzzword none of us wants to hear in any form, but we are forced to acknowledge its presence in one or the other way.
Every morning when you are eager to read the daily newspaper, the very first headline which shocks you is about the rise in the price of one or other essential commodity and from there on your appetite to read the newspaper suddenly disappears.
Six months back you took your family to a class restaurant in the downtown area for dinner and spent some amount.
Today if you decide to visit the same restaurant, probably you will have to shell out at least 10 to 20% more than what you paid last time. In the last six months, your monthly income from salary or any other source might not have increased at all, but you are forced to spend more due to the inevitable effect of rising inflation. Lots of people are worried about inflation.
However, before we proceed further to deal with the menace of inflation, let us first understand its integral meaning in simple terms.
“Inflation” is defined as a sustained increase in the general level of prices for goods and services. As inflation rises, every shilling or dollar you own buys a smaller percentage of goods or services.
The mute remains as to what causes “inflation”? Economists wake up in the morning hoping for a chance to debate the causes of inflation.
Although there is no single cause that’s universally agreed upon, at least two theories are generally accepted: The first one is the ‘Demand-Pull Inflation’ – this theory can be summarized as “too much money chasing too few goods”.
In other words, if demand is growing faster than supply, prices will increase. This usually occurs in growing economies. And secondly the ‘CostPush Inflation’ – when companies’ costs go up, they need to increase prices to maintain their profit margins. Increased costs can include things such as wages, taxes, or increased costs of imports etc.
On a positive note, don’t be upset as there are some products which in the long run can surely beat inflation. So let us make a sincere attempt to find out such wonderful instruments of investment which can beat inflation in today’s parlance.
Some notable investment products falling under this category are as follows:
(1) Equity – the first soldier in the army fighting inflation is of course the ‘equity’.
This instrument in many countries is known for generating a compounded annual growth rate of as much as 20-25% on average. You can either enter the stock market directly or through the mutual fund route. Invest directly only if you understand markets well else adopt the indirect route through unit trust schemes.
Equity investments work best in the long run. Thus, to make the most of equity instruments, remain invested for at least 8 to 10 years.
(2) Gold – this is one of the most precious metals desired by all. Tanzania is known for its gold production. Thus, if you invest in Gold, there is very less chance that its value will get eroded.
Though the traditional way to invest is to buy physical Gold, however the best way to invest in gold is through gold exchange-traded funds (ETFs) or gold mutual funds. They are convenient and cheaper and there is no risk of loss or theft associated with physical gold.
(3) Real estate – another popular avenue to beat inflation.
Investment in real estate can be done through commercial, residential properties, land or real estate investment funds. However, there are certain factors you must consider before investing in real estate. It is not a liquid asset and there is a lot of paperwork involved towards acquiring an asset.
Besides, there are various recurring expenses such as property tax, maintenance, deemed rentals, problems with tenants and periodic renovation. If you sell it, then depending on how you use and invest the proceeds you may have to bear the capital gains tax as well.
Moreover, in the largely unregulated market, cases of fraud and title disputes are quite common. However, despite all this, it remains a preferred investment avenue and if chosen well, can protect the value of your asset from inflation in the long run due to its inherent feature of capital appreciation.
(4) Systematic Investment Plans [SIPs] – these are plans where investors are required to invest a specified amount at regular intervals [may be daily, weekly, monthly or quarterly basis]. In a rising inflationary economy, SIPs come very handy in controlling the adverse impact of inflation on your savings, as you would always have some investments which were made when the inflation rate was low.
(5) Invest in Dollar Funds – if due to inflation your base currency is depreciating continuously, then part of your savings can be parked into funds which are denominated in Dollar, Pound Sterling or any other strong currency. These are some of the time-tested weapons in your armoury through which you can easily beat the menace of inflation.
So let us together fight this silent killer of our money power by implementing the above-stated strategies.
For More News And Analysis About Eritrea Follow Africa-Press
