While topics like offshore investments and the real estate market are fun to discuss and exciting to everyone with a little money that they hope to grow, there is one aspect of investing that most people prefer not to discuss or even think about. It’s inflation. Inflation is scary because, no matter how smart, lucky or intelligent your investments are; inflation can eat up the wealth you have worked so hard to build and there is little you can do about it.
That’s what’s so scary about it.
What Richard Cayne of Meyer International says about inflation is this: “No matter how much money you have, you essentially have less money than you think you have. And the more you have, the more you stand to lose, so the more you’re stressed out by inflation.”
“Look, if you only have a few dollars in your pocket and are worried about buying today’s bread and milk, maybe inflation doesn’t matter to you. It’s when you have a lot of money and inflation is constantly eating away at it that it gets scary,” he said.
“Safe is a Loss”
What Richard Cayne is insinuating with this anecdote about literal bread and figurative bread (bread has been, at times in English language history, a well-deserved slang name for money) is that, if you want to build or maintain your wealth, you can’t simply play it super-safe by keeping your money in a savings account.
Even if you rarely spend a dime, inflation eats away at your savings. You need to invest it.
“Learning more about inflation initiates change in people who think they are being conservative by keeping money ‘nice and safe’ in the bank. They start to realize that they can’t do just that. It’s not enough,” said Richard Cayne.
He gave this example: “If you have $10 million and you put it into a savings account where you are earning .5 or 1 percent interest but there is 3 percent inflation, you are losing money every single day without spending a dime. At 1% interest rate next year the purchasing power of the original US$10M is US$9.8M and each year erodes from there”
Instead, he advises clients to make investments at whatever level of risk they feel comfortable.
Think Long-term, not Short-term
Investment might be scary to think about for some people that consider themselves “too conservative to gamble with money.” In these cases, Richard Cayne advises investments with the lowest level of risk possible and that the investors think long-term, not short-term, about their investments.
That might mean that, if it’s too stressful to look at the numbers in your accounts going up or down, you should have your advisor monitor them and just update you periodically. It really doesn’t matter what day to day fluctuations exist but it does matter where the balance on your account is down the road when you need to use that money.
“Don’t look at short-term balances, look at long-term balances,” advises Richard Cayne, “Think about what the balances will be 10 or 20 years down the line, not next year.”
To learn more about investment at any risk level and measures used to stave off inflation’s effect on your wealth, Richard Cayne and Meyer International can be reached at (+66) 02 611 2561.