IndiaP2P Blog

Responsible content on personal finance & economics that makes you smarter about money.

5 ways to Save & Invest when inflation is high

Sep-02-2022


Blog Image

Inflation rates have been soaring across the globe, and you likely felt the pinch of rising expenses. 

 

High inflation is decreasing the value of cash sitting in our bank accounts. Consumer inflation is touching 8% and your personal inflation rate may be even higher. 

While moderate levels of inflation may be good for the economy, high inflation is bad news for you as a consumer and as an investor. Experts suggest that inflation is likely to remain high for some more time.

 

 

Here are some tips to counter the impact of inflation on your finances:

 

1. Measure i.e. estimate your personal inflation rate. You can do this by simply comparing your expenses on regular items between two time periods. You can also choose from many of the expense management tools available today.   

The consumer inflation number is a consolidated figure representing the standard weights of different categories of spending. For instance, food inflation is ranging between 11 to 14% while rent inflation is lower. These differences make it all the more important for us to understand how much we are personally affected by rising prices.

 

2. Tighten expenses: Obviously. Inflation is good motivation to cut back on less necessary expenses. Take a look at your bank/credit card statement to analyse. 

You can also apply one of the popular mental frameworks or budgeting strategies such as the 50:30:30 budget where you spend 50% on needs, 30% on wants, and straight away save 20%, or, the zero-based budget where list all your expenses and subtract them from your income, helping you prioritize. There are other frameworks as well to get you started in a structured way.

 

3. Invest in assets that offer clear, positive real returns.

Real returns = Indicated investment earnings - Inflation rate. While FDs are giving negative returns at the moment, some of your other investments might also be doing the same. It’s important to churn investments from time to time to ensure that your returns are healthy

 

 

4. Know that all investments are not equally affected by high inflation.  

To control inflation, central banks increase interest rates which affect businesses and sectors differently. Be extra careful while investing in stocks/companies that require regular capital infusion for their business model. For example equipment leasing/rental businesses that constantly need to buy new equipment and retire older batches. The sales of certain goods and brands drop when prices increase; companies with better brand power are better geared to maintain sales at higher prices. 

Companies that are leveraged i.e. take on debt are likely to see an increase in debt servicing costs which impacts profitability. Some companies choose to reduce debt in such times affecting future growth prospects.  

 

For bond investors, it’s good to remember that bond prices and interest rates are inversely proportional. Increasing interest rates affect every kind of debt instrument, however, the impact is more severe on the medium to longer duration debts than the shorter ones. This is because the price fluctuation is very low in short-term instruments. 

Hence, debt instruments that invest for a shorter period perform better in a rising interest rate scenario. On the other hand, medium and long-term debt instruments witness a price correction. 

 

Coming to real estate investments, as is seen in the past, whenever the interest rates go up, property stocks tend to lose value at least 60% of the time. Higher interest rates make acquisition costs of new assets more expensive if real estate expansion is financed through borrowings. 

 

 

5. Seek a raise, and increase the price of your service in line with inflation. The prices of commoditized services such as logistics, dining etc. have seen recent increases in line with inflation. You should also seek an increase in the price of your time, product, or service if required.

 

 

Other Blogs


Women are better borrowers than men.

Dec-16-2022


women-are-better-borrowers-than-men

If asked to imagine businesspersons, entrepreneurs, self-employed individuals, most of us are likely to picture a man.  However, the reality is more balanced.  Just in India, we have over 20% of MSMEs owned and run by women.  The past decade and a half has also been instrumental in creating financial parity amongst genders through the creation of bank accounts and credit extension focused on women; creating millions of thriving women owned businesses. Credit or loans enable businesses to grow, create greater economic value, jobs and of course, generate returns for the credit provider as well. In this context, is there a difference between how men and women access and repay loans? The answer is yes.  When it comes to credit extension to women, a global success story has been that of microfinance wherein small loans (going up in size over time) are extended to women basis social underwriting.  In India, as with other types of loans, microfinance loans to women...

READ MORE

9 Common mistakes investors make

Dec-09-2022


9-common-mistakes-investors-make

Making investments to grow your money is essential. Most investments these days carry an amount of risk. Investors are prone to making mistakes, especially when they are new to investing. It is common for everyone to make a mistake with their investment at least once during their journey. However, one can also learn from other’s mistakes and avoid making those mistakes, to begin with. Investing usually seems like a stress-free side hustle. However, first-time investors often find that the truth is far from this myth. Investing takes time, effort and patience. Investing in any asset class can be tricky and can cost you lots of money if not paid attention to.  Investing can be exciting mainly because of the significant rewards it can potentially provide. However, if you would like to reap high rewards from investing, it is important to follow a good strategy. But, sometimes, people who follow a good strategy can also incur losses during their investment. It is usually...

READ MORE

Illusion of Diversification in Stock Market

Dec-02-2022


illusion-of-diversification-in-stock-market

We must have all come across the term diversification at least once by now. Doesn’t matter if we invest in the stock market or not, the term has been fairly used for quite a while, across multiple mediums. But what does diversification in financial terms really mean? To describe it in simple terms, diversification refers to the practice of spreading out one’s investments in order to limit the exposure to a specific type of asset. This concept helps in reducing the volatility and overcome the fluctuations that are common in the stock market. Importance of Diversification Diversification acts as the ultimate safeguard against the risk of a single investment bucket performing poorly or failing completely. For instance, if you had invested all your hard earned money in the stock market, then there are chances that you might lose out on your empteen capital due to the stock market crash. Now when you diversify your investments across multiple asset classes, some might fall...

READ MORE


News & Announcements

  • 30 Startups to watch in Feb, 2022

    Read More
  • High-Yield investment platform IndiaP2P r....

    Read More
  • IndiaP2P raised funds from Antler VC

    Read More
  • Antler VC funds IndiaP2P

    Read More
  • Alternative Retail Investment Platform, IndiaP2P, delivers 17 per cent a year returns

    Read More
  • How to save during inflation and rising prices?

    Read More
  • IndiaP2P delivers >17% p.a. returns

    Read More
  • The peer-to-peer approach of IndiaP2P

    Read More
  • Funding news: IndiaP2P raises funds from Antler VC

    Read More
  • Emerging fixed-income alternatives for retail investors

    Read More
  • Business leaders ready to create history

    Read More
  • 4 retail investing trends investors should not miss

    Read More

Have more questions? Click here to schedule a quick call with our investments team

CHAT WITH US

Start Investing