Wednesday, October 8, 2008

Inflation - The Silent Killer

Many still harness the illusion that placing one's hard earned money in the banks, earning a paltry interest of less than 1.5% p.a., is the safest and surest thing to do in the current climate. I beg to differ.

One of your greatest invisible enemies is inflation. If inflation hovers at just 3% p.a., which was more or less the scenario for the last decade, it can already make a significant dent to your retirement nest egg - halving your purchasing power in every 24 years. A simple sensitivity analysis reveals that, inflation at 5% p.a. would half your purchasing power in 15 years. And at 7% p.a., it would erode your purchasing power by half in every 10 years. Hence, inflation nibbles away at your nest egg 24 x 7 like a stinking rat, even while you sleep...

And before you know it, you have no cheese left. Do you sense that sinking feeling now? Of course, the next logical question would be, what can we do to fight inflation?

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