Inflation and You
Most pundits are forecasting inflation will rise. So what does that mean to you? Before I discuss the implication of inflation let’s have a look at a chart based on one of the most accurate inflation forecasters around. The following chart is from Financial Trend Forecaster and they state “The Moore Inflation Predictor© (MIP) is a highly accurate graphical representation forecasting the future direction of the inflation rate. It has a 97%+ accuracy rate on forecasting inflation rate direction & turning points.”
The completely obvious factor is the faster inflation rises the faster the price of the goods and services we consume increases. There isn’t much we can do about that. What we can do is ensure that rising inflation does not destroy the value of our money. I know a lot of individuals are finding falling stock prices to much to stand and are pulling the plug and going to cash. Sadly for them, this is exactly the wrong time to be selling shares and going to cash. While inflation is rising interest rates are falling, the combination of these two ensures the value of cash will decrease over the coming years. Every year cash in the bank will buy you less. Those holding cash will see their purchasing power fall. Conversely, inflationary times actually seed profit gains for companies. When you combine that will the fantastic low prices and great value currently offered on world share markets it is clearly the best place for most people to put their money. Dollar cost averaging into an index fund over the coming months and possibly year or two should provide out-sized returns over the coming years.
Australian’s should look to invest in an Australian index fund. As should American’s. A USD is currently buying $1.64AUD ( inverse 0.61). That is a fantastic rate which I believe American’s should be taking advantage of. Whether it is an Australian or another international index fund I believe American’s should be insuring themselves against an inevitable collapse in the USD by moving a portion of their wealth out of USD.
Related posts:
Leave your response!