Silent Killer !!(INFLATION)

Added sugars in food and beverages offer no nutritional values other than empty calories but are excessively consumed because our brain gets to lighten up due to a surge in dopamine ignoring the long-term chronic illness caused by it.

Let me introduce you to yet another class of alleged silent killers called inflation which may result in a pay hike every year releasing the dopamine but may destroy your wealth in a relatively long period of time when not invested in assets that grow more than inflation.

Imagine you are cruising upstream in a ship, wading against the stream. It is natural that for you to move forward your speed has to be more than the opposing stream. so, the inherently present stream has to be opposed relentlessly for you to move forward.

Inflation is similar to the opposing stream. It has to be defied relentlessly for you to build wealth not letting inflation corroding your money.

M Pattabiraman of Freefincal has this anecdotal explanation that he could buy a cup of tea in 1990 for 50 paise and now the same tea would cost you 12 rupees that is the price has increased CAGR of 11%  meaning the purchasing power of money has come down by 11% ( Yes you can accuse me  of availability bias but inflation now at least in Bangalore is more than 8% definitely more than official figures so nothing wrong in assuming high inflation to remain cautious )

Let's check how much would this 11% inflation destroy your wealth, for a crore rupees you have now the real worth of money would be a little less than 5 lakhs after 30 years!!! 

Isn't this a real silent killer???

Assume that the yearly expenses of a family to be 5 lakhs. After 30 years family has to shell out one crore for the same lifestyle it is enjoying now!!!

How to save yourself from the death blows of inflation ?, For that, you will have to invest in assets that will grow more than 11% over long periods of time and can liquidate them when in need hence purchasing power of the money is retained for longer times but mind you, you should be cautious of any promise of guaranteed returns more than government of India 10 year bond because anything more than 10-year bond will have the risk of volatility or loss of capital. 

This leads to a fundamental question of what causes inflation??

Inflation is caused by the free flow of currency either due to the loose monetary policy of RBI or from the fiscal side by excess government spending.

The poor without assets are worst affected as they don't convert money into hard assets which they can by buying gold(easy to understand ) in small amounts and liquidate when required(in a longer time frame)  so whenever you read RICH ARE GETTING RICHER POOR ARE GETTING POORER its because they don't convert money into meaningful assets which compound over long periods of time 

Albert Einstein is believed to have said this about compound interest "compound interest is the eighth wonder of world one who knows it earns one who doesn't pay it"(I don't know if its a marketing tool to attribute this phrase to him but it is truly the eighth wonder ) 

PV Subramanyam of subramoney.com makes this interesting calculation that had your grandparent had deposited 100 rupees and had it compounded for 200 years at 10%  guess what that amount would add up to?? It's nearly 2000 crores that's the power of compounding but much of the wealth is created at the later parts of the time frame it's back-ended and takes long, really long periods of time. Warren Buffett invested from the age of 14 and became a billionaire only after his 53rd birthday the discipline and focused investing led him to where he is 

So, meaningful assets which compound over a long period of time make the  Rich,  Richer, and Poor is punished for not doing it.