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By:

Kaustubh Kale

10 September 2024 at 6:07:15 pm

Silent Money Killer: Loss of Buying Power

In personal finance, we often worry about losing money in the stock market, dislike the volatility associated with equities or mutual funds, or feel anxious about missing out on a hot investment tip. Yet the biggest threat to our wealth is far quieter and far more dangerous: loss of buying power. It is the invisible erosion of your money caused by inflation - a force that operates every single day, without pause, without headlines, and often without being noticed until it is too late....

Silent Money Killer: Loss of Buying Power

In personal finance, we often worry about losing money in the stock market, dislike the volatility associated with equities or mutual funds, or feel anxious about missing out on a hot investment tip. Yet the biggest threat to our wealth is far quieter and far more dangerous: loss of buying power. It is the invisible erosion of your money caused by inflation - a force that operates every single day, without pause, without headlines, and often without being noticed until it is too late.
Inflation does not take away your capital visibly. It does not reduce the number in your bank account. Instead, it reduces what that number can buy. A Rs 100 note today buys far less than what it did ten years ago. This gradual and relentless decline is what truly destroys long-term financial security. The real damage happens when people invest in financial products that earn less than 10 per cent returns, especially over long periods. India’s long-term inflation averages around 6 to 7 per cent. When you add lifestyle inflation - the rising cost of healthcare, education, housing, travel, and personal aspirations - your effective inflation rate is often much higher. So, if you are earning 5 to 8 per cent on your money, you are not growing your wealth. You are moving backward. This is why low-yield products, despite feeling safe, often end up becoming wealth destroyers. Your money appears protected, but its strength - its ability to buy goods, services, experiences, and opportunities - is weakening year after year. Fixed-income products like bank fixed deposits and recurring deposits are essential, but only for short-term goals within the next three years. Beyond that period, the returns simply do not keep pace with inflation. A few products are a financial mess - they are locked in for the long term with poor liquidity and still give less than 8 per cent returns, which creates major problems in your financial goals journey. To genuinely grow wealth, your investments must consistently outperform inflation and achieve more than 10 per cent returns. For long-term financial goals - whether 5, 10, or 20 years away - only a few asset classes have historically achieved this: Direct stocks Equities represent ownership in businesses. As companies grow their revenues and profits, shareholders participate in that growth. Over long horizons, equities remain one of the most reliable inflation-beating asset classes. Equity and hybrid mutual funds These funds offer equity-debt-gold diversification, professional management, and disciplined investment structures that are essential for long-term compounding. Gold Gold has been a time-tested hedge against inflation and periods of economic uncertainty. Ultimately, financial planning is not about protecting your principal. It is about protecting and enhancing your purchasing power. That is what funds your child’s education, your child’s marriage, your retirement lifestyle, and your long-term dreams. Inflation does not announce its arrival. It works silently. The only defense is intelligent asset allocation and a long-term investment mindset. Your money is supposed to work for you. Make sure it continues to do so - not just in numbers, but in real value. (The author is a Chartered Accountant and CFA (USA). Financial Advisor.Views personal. He could be reached on 9833133605.)

The Art Of War and Peace

Updated: Mar 17


War and Peace

War and Peace

War and Peace

President Trump’s decision to suspend military and intelligence support for Ukraine is regarded as the best effort to end the Russia-Ukraine war and establish lasting peace. However, this move seems more aimed at forcing Zelenskyy to the negotiating table while demonstrating the Great American Power. Trump has threatened to turn off Starlink for Ukraine. He even suggested the deportation of 240000 Ukrainians back to their homeland. Meanwhile, Britain and France have stepped up to defend the nation at war. France is providing crucial intelligence, and the UK is showcasing generosity by loaning £2.26 billion from the profits made on sanctioned Russian assets. These contrasting actions, however, highlight a stark divide. Some may say King Midas is losing his golden touch.


It appears that the West's plan to bleed Russia by leveraging Ukraine has failed, as the Russian economy has continued to grow even amidst the war stress! Over the years, Putin’s Russia has proven to be “sanction-proof.” The Yuan and gold seem to have kept the Russian economy afloat.


For years, Russia has withstood the relentless economic, military, and geopolitical pressure imposed by the US and its allies, showcasing its capacity to defy the combined Western power. This war has not only underscored Russian resilience but has also strengthened its alliances with anti-US nations. In this war, North Korea, Iran, China and Russia emerged as the new axes against the Western world that could shape the global balance of power.


With the US-Ukrainian Mineral Deal in place, one might think that the US on Ukraine's soil can reclaim the Ukrainian territories Russia had gained! But remember, Russia has sustained the war they all combinedly waged. And with China and Iran's support, Russia can make the US Minerals/ Peace Deal go Minsk's way.


Although Western guns and funds kept flowing into Ukraine, Russia gained almost 20% of Ukrainian territory, which is rich in vital resources—accounting for 80% of Ukraine's coal, 40% of its oil and gas, and a major chunk of its rare earth elements! The annexed territories also possess a densely populated pro-Russia workforce, a critical advantage for Russia as it confronts a shrinking population.


Trump's fresh tariff threat against Russia lacks significance, as the Russian economy is not dependent on US Trade. On the contrary, by seizing control of southern Ukrainian fields, Russia has snatched from Europe its breadbasket, challenging the food security in the West.


Given Trump's NATO withdrawal threat and sudden halting of Ukraine's military aid, the European leaders have finally realized that the US is no longer willing to bear the financial burden of war or guarantee the security of its allies. This sudden wake-up call has led  EU leaders to finally accept the limits of their capacity to supply arms to Ukraine. As a result, they are prioritizing strengthening their defence capabilities by substantially increasing defence spending in the coming years. With public debts already exceeding GDP in Britain and many EU countries, they will have to curb productive spending or cut on welfare to fund their warfare. So don't be surprised if these countries shift their focus away from Ukraine and begin actively pursuing Free Trade Agreements and defence partnerships with India. They may view India as a cost-effective and dependable manufacturing partner and call us a "strategic ally". This is the tiny trailer of what the future may hold if America exits NATO, leaving European nations to take complete responsibility for their defence and security.


Years ago, Ukraine relinquished its nuclear power through a denuclearisation treaty. And that undermined its ability to defend sovereignty against an aggressive, mighty neighbor and the West’s meddling, ultimately ending its prospects for lasting peace. Zelenskyy's pro-West leaning and NATO aspiration conflicted with Putin's Soviet dreams. Three years on, Ukraine lies in ruins. And now, Zelenskyy might be counting on Europe to utilize frozen Russian assets to rebuild his country. However, the fear of losing the credibility of the Euro and triggering withdrawals of foreign deposits from European banks would refrain the EU nations from seizing the frozen Russian assets. Zelenskyy has already lost a prosperous region of Ukraine to Russia. The Minerals Deal would bind Ukraine's economic freedom to America. And this raises a serious question about the necessity of his security guarantee demands! Reminds me of an old Hindi song “Nani teri morni ko mor le gaye baki jo bacha tha kale chor le gaye”!


Trump may implement reciprocal tariffs, suspend aid, and threaten to exit the NATO alliance. He may acquire a stake in Panama, negotiate for Greenland, and wish to control global maritime trade. He may win over Oil Kings and slap harder sanctions on the Russians. But wait. Is he opening up too many fronts at the same time?


Trump would make Zelenskyy sign the Mineral Deal and Allies to contribute to their security bills. Trump certainly knows “the Art of the Deal”, but the Art of Ending the War is now all he needs! It is crucial to recognise where to stop and avoid future entanglements or create bitter enemies. Otherwise, there will be no end to war but an end to lasting peace.

(The author is a foreign affairs expert. Views personal.)

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