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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 Drowned Frontier

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Texas has always had a tempestuous relationship with water. The vast expanses of the Lone Star State, punishingly dry for much of the year, are periodically soaked by ferocious downpours, some of which reshape the land and rewrite the lives of those caught in their path. The recent floods that swept through central Texas killing more than 130 people were not merely a freak incident of weather, but rather the outcome of a complex and long-brewing confluence of geological legacy, climate patterns and modern settlement.


The immediate culprit was meteorological. As the remnants of Tropical Storm Barry drifted across the Gulf Coast, they collided with a mesoscale convective vortex (MCV) - a low-level swirling pocket of atmospheric instability - lingering over central Texas. The MCV acted like a celestial whisk, stirring the moist tropical air into slow-moving thunderstorms. What followed was a textbook case of flash flooding: intense rainfall concentrated over a small area in a short period, with nowhere for the water to go.


But the real story runs deeper - literally, into the Earth’s deep past. Texas lies at the southern edge of the North American plains, a region whose topography was shaped during the Pleistocene epoch, between 2.6 million and 11,700 years ago. Repeated glaciations in the north displaced climatic zones southward, subjecting Texas to wild oscillations between aridity and deluge. The Balcones Escarpment, which separates the Hill Country from the Gulf Coastal Plain, was forged in this turbulent era. It now marks a deadly transition zone where dry highland meets moisture-laden air from the Gulf, making it particularly prone to flash floods. That part of the state is colloquially known as ‘Flash Flood Alley’, though the name has no strict scientific definition, its danger is real.


Flash floods, unlike slow-rising river floods, occur with little warning. Their lethality stems from both natural hydrology and human development. In the past, water would have been absorbed by prairie grasslands or meandered through seasonal creeks. But as Texas has urbanised, the land has been blanketed in concrete, diverting runoff into narrow storm drains and swollen creeks. In effect, sprawl has mechanised the flow of water, making floods faster and more violent.


Climate change, too, plays its part. One of the telltale signatures of a warming planet is that the atmosphere becomes thirstier. That means tropical systems such as Barry are becoming wetter and more energetic. According to recent studies, the intensity of rainfall from such systems in the southern United States has increased markedly over the past few decades. Climate models suggest that extreme precipitation events are likely to become both more common and more intense in the years ahead.


Yet it would be misleading to blame climate change alone. Drought had preceded the flood in central Texas. Ironically, dry soil is less absorbent, exacerbating runoff. And deeper still lie socioeconomic factors. Poorer communities often inhabit the most flood-prone areas. They are also less likely to receive effective warnings, or to have the means to evacuate swiftly.


Despite the increasing frequency of such disasters, public policy remains stubbornly reactive. Flash floods are difficult to forecast and even harder to manage. Early-warning systems exist, but they are unevenly deployed and poorly understood by the public.


John McPhee, in The Control of Nature (1989), chronicled the ways in which engineers have tried, and often failed, to keep rivers in their lanes and lava flows at bay. In Texas, as in Louisiana, efforts to impose order on chaotic natural systems have brought only temporary reprieve.


Floods are not new. But the magnitude of loss, in a land historically adapted to dry and wet extremes alike, is a warning. The only question is whether Texans will be better prepared the next time.

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