Investment
Investment is an art and a science, key to successful investment is focused and effective investment planning. Interest rate and inflation are key to investing decisions.Because both these factors directly impact on the investment yield.
Inflation
Inflation is a rise in the general level of prices of goods and services over a period of time.Inflation is the rate at which the cost of living increases.Inflation causes money to lose value because it will not buy the same amount of a good or service in the future like present stage or past.
Inflation quoted simply by "Too much of money chasing Few Goods"
Inflation come by excessive money supply in an economy.Governments use the interest rate to control money supply and,consequently, the inflation rate. When interest rates are high, it becomes more expensive to borrow money and savings become attractive. When interest rates are low, banks are able to lend more, resulting in an increased supply of money.
Inflation With Bank Deposits
Investment is an art and a science, key to successful investment is focused and effective investment planning. Interest rate and inflation are key to investing decisions.Because both these factors directly impact on the investment yield.
Inflation
Inflation is a rise in the general level of prices of goods and services over a period of time.Inflation is the rate at which the cost of living increases.Inflation causes money to lose value because it will not buy the same amount of a good or service in the future like present stage or past.
Inflation quoted simply by "Too much of money chasing Few Goods"
For example
Today the amount is Rs.1000 worth of purchases would be Cost Rs.4660 in next 20 Years when Inflation rate at 8%.
The Aim of Investments should be to provide return above the Inflation Rate to ensure that the Investment does not decrease in Value.So,Investors aim to preserve the value of their money by opting for investments that generate yields higher than the rate of inflation.when the inflation rate rises, Government/company Bonds/debt instruments would need to attract investors with a higher interest rate.
Inflation and Interest Rates
The Aim of Investments should be to provide return above the Inflation Rate to ensure that the Investment does not decrease in Value.So,Investors aim to preserve the value of their money by opting for investments that generate yields higher than the rate of inflation.when the inflation rate rises, Government/company Bonds/debt instruments would need to attract investors with a higher interest rate.
Inflation and Interest Rates
Inflation come by excessive money supply in an economy.Governments use the interest rate to control money supply and,consequently, the inflation rate. When interest rates are high, it becomes more expensive to borrow money and savings become attractive. When interest rates are low, banks are able to lend more, resulting in an increased supply of money.
Inflation High---> Interest Rate High ---> Pumping Up Investments --->Money flow reduction
Inflation Low---> Interest Rate Low ---> More lending(Cheaper Loans) --->Money flow Injection
A rise in the interest rate in a particular country fuels the inflow of funds. Investors with funds in other countries now see investment in this country as a more profitable option than before.
Time Value Of money
Inflation has a significant impact on the time value of money.Changes in the inflation rate result in changes in the rates of interest. Banks and companies anticipate the erosion of the value of money due to inflation over the term of the debt instruments they offer. To compensate for this loss, they increase the interest rates.
The central bank of a country alters interest rates with the broader purpose of stabilizing the national economy. Investors need to keep a close watch on interest and inflation to ensure that the value of their money increases over time.
Inflation With Bank Deposits
If Inflation High mean,Value of Money decreases,so our Investment decision should be made with consideration Of Inflation Too.
When Inflation rate high,Bank Deposits/Government bonds yield more than Stocks/Equities.So,Bank Deposits/Bonds are more attractive.
Inflation With Stock market
Stock market yield negative returns when inflation is high,less attractive also.
Gold-With Inflation
Gold is a good Investment Performer when Higher Inflation or Lower Inflation.When Inflation is high,Gold as used as Hedge against Inflation.
When Economic Recession/slowdown also,Gold is Performer.When Inflation is low,Bank Deposits fetch less attractive,that time Gold Good Investment.
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