How To Protect Your Wealth Against Inflation & Maximize Growth

Understanding Inflation

When the cost of everyday necessities—like groceries, clothes, and services—climbs over time, that’s inflation at work. In other words, the money you have right now might not stretch as far in the future when buying things.

For example, something that cost ₹100 a few years ago might cost ₹110 or more now. If your money isn't growing at the same pace as these rising prices, it's like losing value.

How Inflation Has Affected Savings in India Recently

In the past six years, India's inflation rates have varied between 3% and 7%. Here's a quick rundown:

• 2018: 3.4%
• 2019: 4.8%
• 2020: 6.6%
• 2021: 5.1%
• 2022: 6.1%
• 2023: 5.4%

Imagine you had ₹one crore in a savings account with 5% interest per year. After five years, it would grow to about ₹1.28 crore. But with an average inflation rate of around 5.2% during that time, the actual value of your money would decrease. After adjusting for inflation, your ₹1.28 crore would be worth about ₹99.5 lakhs in today's value. So even though the number in your bank account has increased, what you can buy with that money has decreased.

On the other hand, if you invested the same in a mutual fund with an annual return of 12%, it could grow to approximately ₹1.76 crores over the same period. After accounting for inflation, you'd still be ahead. It highlights the importance of smart investing, possibly with guidance from a trusted financial advisor.

Why Protecting Your Money from Inflation Matters

Keeping your money safe from inflation means ensuring it doesn't lose its buying power over time. If you leave your savings in a regular bank account, inflation can slowly eat away at its value. To prevent this, your money needs to grow faster than the inflation rate, which is where investing comes in.

Investing in assets like stocks, bonds, real estate, or alternative investment funds (AIFs) can help your money grow. These investments often provide returns that outpace inflation, helping you maintain or increase your purchasing power. Simply put, investing helps your wealth grow while shielding it from the silent loss caused by inflation.

What Is Hedging?

Hedging is like getting insurance for your investments. It's a strategy to reduce the risk of losing money due to changes in prices. By spreading your investments across different asset types—such as stocks, bonds, real estate, or AIFs—you can lessen the impact of inflation and other financial risks.

For example, while inflation might reduce the value of cash savings, investments in stocks or real estate might increase over time. This balance helps protect your overall wealth.

Balancing Between Savings and Investments

It is important to strike a balance between saving money and investing it. You should keep some funds in a savings account for emergencies—usually enough to cover 3 to 6 months of living expenses. It ensures you are prepared for unexpected events like medical bills or job loss.

However, keeping too much money in a low-interest savings account means missing out on opportunities to grow your wealth. After setting aside your emergency fund, consider investing the rest to protect against inflation and build wealth over time. Depending on your financial goals and how comfortable you are with risk, you might choose to invest in stocks, bonds, mutual funds, or other assets.

How Financial Advisors Can Help

Financial advisors and wealth management services can be valuable allies in protecting your money from inflation. They offer personalized advice to help you create an investment plan that balances growth and safety. Advisors can also guide you on when to buy or sell certain investments to maximize returns and minimize risks.

By diversifying your investments across different sectors and asset classes, a financial advisor can help ensure your wealth grows while being shielded from inflation. They'll also monitor your investments and make adjustments as needed, keeping your financial goals and current market conditions in mind.

Inflation negatively impacts the net value of your money over time. But by investing wisely and perhaps seeking help from financial experts, you can protect your savings and grow your wealth.

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