Inflation-Conscious Investments: Avoid the most common investment pitfalls
By 50minutes
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About this ebook
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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Book preview
Inflation-Conscious Investments - 50minutes
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