In 2008 the average rate of petrol was Rs. 62.80 per litre. By July 2019, its price jumped to Rs. 112.68 per litre. This is how inflation works. Not just petrol, but the prices of other products as well tend to rise over time. These may include goods like staple food or services like college fees.
When you save money without investing, you actually lose money.The purchasing power of your money shrinks with inflation. Let’s say you saved Rs. 15,000 during a year to buy a new smartphone, however, because of inflation, the price of that smartphone increased to Rs.16,500. Now you can’t buy the new phone with your savings (Rs.15,000)! You will have to put in extra Rs.1,500 to compensate for the inflation. Had you invested your savings in an investment product which gave you 10% or higher return in a year, your savings alone could have allowed you to buy the phone.
Hence, the best way to protect your savings is by investing in investment products. Investment in stocks either through direct investment in stocks or through stock mutual funds is a great way to beat inflation. This is because corporations will sell their goods at increasing prices, which will eventually lead to elevated revenues and positive stock performance. However, stocks have greater market risk (risk of losing principal investment) than bonds and bond funds.
Thus stop watching your savings get devalued, and use the above tips for a better future!