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FP Article 15.7 (To sign up for a FREE 16-lesson eCourse on Investment Risk, please click here.)

Investment Risk - Inflation Risk

by Rajen Devadason

Inflation is taxation without legislation.

Milton Friedman

  Those who choose to play things too safe often run the risk of slamming into the most insidious form of investment risk - inflation risk.

This form of investment risk is very easy to understand. If you decide you don't trust banks and choose to save all your money in a stuffed pillow case at home, after about a decade of this ludicrous behaviour you'll find the purchasing power of the money you saved greatly eroded.

Such is the danger of inflation.

 

 

 

 

 

 

 



Inflation risk, therefore, simply means you run the risk of not being able to buy as much with your money tomorrow as you can with it today.

This is an article explaining inflation risk. I hope you enjoy reading it. But if it isn't what you're looking for, you're welcome to search for something that better meets your needs. Thank you for allowing me to serve you.

Rajen Devadason

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This is caused by that most prevalent economic cancer we all know as inflation. The only way regular people can stay ahead of inflation's voracious appetite is to curb their own.

Are you doing that? 

If you are, then half the battle of building wealth in real terms is won. Winning the other half of that particular skirmish that we're all engaged in involves learning to invest wisely so that in net terms (meaning real economic terms) your entire portfolio of savings and investments stays ahead of inflation in the years ahead.

Spending time on this page and learning about the other forms of investment risk, which are referenced below, are fabulous ways to commit to your education. In the long run, such a commitment to lifelong self-education will yield great dividends. 

Ultimately, no one cares as much about building wealth for yourself as you! Not even the government.

In fact, the economist John Maynard Keynes once noted: "Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency."

In case you're not familiar with the term, debauch has several distinct dictionary meanings. If you have the time, you should look those up! But to save you time, in our current context, to debauch means to reduce the value and quality of a country's local currency. Bear that definition in mind as I tell you the rest of Keynes's quotation:

"By a continuing process of inflation, Governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens."

Even though I am becoming increasingly cynical with each passing year, personally I don't think our biggest worry - in most countries, at least - is an insidious desire by our elected leaders to impoverish the people.

In any normal, proper, market-driven economy, doing so merely reduces the overall amount that can be liposuctioned out from use via taxes!

Still, I sincerely believe it takes great personal responsibility to be able to stay more than half a step ahead of inflation. Are you willing to pay that price?

If so, continue to study the realities of investing the way you are now. Also, apply whatever you learn... selectively and prudently. If you do that, you will probably join life's economic winners.

If you'd like to continue to learn more about other types of investment risk, here's additional information for you...

15 Types of Investment Risk (OR, to sign up for a FREE 16-lesson eCourse on Investment Risk, please click here.)

1. Borrowing Risk

2. Company Risk

3. Credit Risk

4. Currency Risk

5. Diversification Risk

6. Industry Risk

7. Inflation Risk

8. Interest Rate Risk

9. Liquidity Risk

10. Lost Opportunity Risk

11. Manager's Risk

12. Market Risk

13. Market Timing Risk

14. Political Risk

15. Prepayment Risk

 

 

© Rajen Devadason

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Rajen Devadason, CEO RD WealthCreation Sdn Bhd & RD Book Projects
349, Desa Rasah, Jalan Bayan 7, 70300 Seremban, NS, Malaysia
Tel/Fax: +606 632 8955

 
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