Inflation is a effect that will reduce a certain percentage of our money over a certain period of time.When investing ,inflation is a key index to take note of .
For Singapore, our inflation stood from 2.7% - 5.7% .Thus our investment returns should yield more than the inflation rate to preserve our wealth .In the long run,any return that is less than 5% is not helping to grow our wealth .
For simplicity sake , we assume the inflation at 2.7% for the next 10 years,however this is not the ideal case.
For example, today we pay $10 for watching a movie and with 2.7% inflation rate per year.
After 1 yr, we need to pay $10.027 to watch a movie.
After 5yrs,we need to pay $11.425 to watch a movie.
$10(1+0.027)^5 = $11.425
After 10 yrs , we need to pay $13.05 to watch a movie
$10(1+0.027)^10 = $13.05.
After 20yr , we need to pay $17.04 to watch a movie.
$10(1+0.027)^20 = $17.04.
From above example,i using a inflation rate of 2.7% and with such a low rate we can see how our money is being reduced over time.That is the scary part of inflation ,it is unnoticeable and slowly eroding our wealth .
For Singapore, our inflation stood from 2.7% - 5.7% .Thus our investment returns should yield more than the inflation rate to preserve our wealth .In the long run,any return that is less than 5% is not helping to grow our wealth .
For simplicity sake , we assume the inflation at 2.7% for the next 10 years,however this is not the ideal case.
For example, today we pay $10 for watching a movie and with 2.7% inflation rate per year.
After 1 yr, we need to pay $10.027 to watch a movie.
After 5yrs,we need to pay $11.425 to watch a movie.
$10(1+0.027)^5 = $11.425
After 10 yrs , we need to pay $13.05 to watch a movie
$10(1+0.027)^10 = $13.05.
After 20yr , we need to pay $17.04 to watch a movie.
$10(1+0.027)^20 = $17.04.
From above example,i using a inflation rate of 2.7% and with such a low rate we can see how our money is being reduced over time.That is the scary part of inflation ,it is unnoticeable and slowly eroding our wealth .
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