Protect your wealth from inflation

Rising prices or inflation has made my ten rupee note as good as change. Increasing prices will make the same happen to my five hundred rupee note too. One of the ways to counter inflation is to keep increasing earnings so that one can manage the increasing prices of the things we buy. However, increased earnings will do nothing to protect the money which we have saved from getting worthless. A five hundred rupee we save today will buy us less in 5 years time compared to what it can buy us today.



Not many avenues are available to most of us to protect our savings from inflation. The theoretical way to protect our savings from losing value is to use the saving to buy assets whose value would increase with time. There are a few practical ways to follow this theoretical approach.

1.  Buy gold or silver
Buy gold or silver as normally people in India have been buying it in the past, either during festivals, marriages or when we had received lump sum amount of money, bonus etc. For a normal person buying gold or silver in today environment doesn't mean buying it just because its price is going up or its easy to speculate. Irrespective of today's prices, one should hold a small part of  the savings as gold or silver (say less than 10%). Historically gold and silver have always acted as a protection or insurance against inflation. Buyers who buy it as a hedge against inflation should do well in the long run (15-20 years). Speculators on the other hand can make or lose money.

2.  Buy stocks for the long run 
Stocks of good companies can be another good avenue for protecting our money against inflation. However buying stocks can turn out to be a big loss if  we don't know what we are doing. If we are not comfortable with stocks, then we can buy stocks indirectly by purchasing mutual funds. However, purchasing mutual funds would also require some homework into identifying good mutual funds which can generate returns to counter inflation.

3.  Buy real estate
Over the long run real estate can also be a good hedge against inflation provided we are buying a property with a clear title at a reasonable rate. Buying real estate in India is definitely not a transparent and clean exercise. The issue with real estate when compared to stocks, gold and silver is that it requires a large investment. Additionally buying real estate using loans may or may not generate returns for us. Real returns when buying real estate using loans need to be assessed objectively as the returns generated from the real estate could go in paying out the interest costs.

I am not aware of any other ways for a normal person (not a trader, investor or speculator) to protect her/ his savings from inflation. I would be keen to hear from you if you have any other suggestions for me.....