FP Article 15.7
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Investment Risk -
Inflation Risk
by Rajen Devadason
Inflation is taxation without legislation.
Milton Friedman
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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.
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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
