Inflation-Conscious Investments E-Book

50MINUTES

• Herausgeber: 50Minutes.com
• Kategorie: Geisteswissenschaft
• Serie: Management & Marketing
• Sprache: Englisch

Seitenzahl: 25

Veröffentlichungsjahr: 2017

Beschreibung

Understand inflation in no time! Find out everything you need to know about making informed investment choices with this practical and accessible guide.

Inflation is an important consideration for anyone looking to make a smart investment, as it will affect the real value of the money involved and can also have a direct effect on interest rates. However, many investors fail to take it into account, even though the mechanisms of inflation are fairly simple to understand. It is also possible to calculate its potential effects on investments using a variety of mathematical formulae.

In 50 minutes you will be able to:
• Learn about the mechanics of inflation and related phenomena 
• Understand how inflation affects the real value of money
• Discover which kinds of investments you should make during periods of inflation

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Leseprobe

Inflation-conscious investments

Problem: what do overall and long-term price increases mean and how can you figure out the total amount that they represent? What specific consequences does inflation have on the purchasing power and decision-making capacities of households and businesses? How can you take this limiting variable into account when investing?Uses: national and international statistical institutes calculate inflation rates in order to determine the rates of overall and specific price increases within a certain period. Given that price and salary increases do not remain proportional during periods of inflation, it may be necessary to monitor their fluctuations in order to:limit their negative effects and try to balance the relationships between the major macroeconomic indicators of inflation, unemployment and GDP;estimate the real gains that could be generated by current investments over the short, medium (10-20 years) and long term (50 years or more);relativise a country’s economic development by differentiating the growth due to price increases from the growth due to an increase in production volume.Key words:Constant price: corresponding price during the reference year.Consumer basket: the consumer basket is one method of measuring inflation and the cost of living. It is made up of a set of consumer products which are used to measure how prices vary over time.Current price: corresponding price during the period in question.Nominal value: an amount which does not take the effects of inflation into account (the first total which is calculated).Purchasing power: the ability to buy a certain quantity of goods in exchange for a certain quantity of money.Real value: an amount which takes the effects of inflation into account.

Given that inflation, like unemployment and GDP, is one of the primary concerns of national and international financial institutions, it is essential to have a good understanding of it in order to effectively shield yourself from the effects of factors associated with it. All investors should stay well-informed about any financial trends or incidents which could affect their portfolio.

Basic concepts

Inflation: sustained overall price increases. The lower a country’s overall price level, the more its currency will be worth. If this overall price level increases, it is known as inflation, and this reduces the country’s purchasing power. In other words, the quantity of goods which can be purchased with a fixed sum of money in that currency will be reduced.Deflation: an overall drop in prices, which is the inverse of inflation.Disinflation: a drop in the rate of inflation, meaning that prices will continue to rise but more slowly.Hyperinflation: a period of extreme inflation.

Within the Eurozone, the European Central Bank is in charge of combatting inflation. Its goal is to keep the rate of inflation close to but no higher than 2%.