Tuesday, January 29, 2008

Inflation and investment

Dear Mr. Tan,

Inflation is expected to increase to 5% in 2008. Interest rate remains very low, less than 2%. The stockmarket is volatile. How should we invest our money to be protected against inflation?

REPLY

The high rate of inflation is caused by temporary factors, i.e. the large increase in oil price and the increase in GST. I hope that it will return to a low level from next year.

If you are investing for the long term, it is better to invest in an investment fund with at least 50% in equities. It is likely to give a return that is higher than inflation in the future. (My estimate is 6% over the long term.)

The global stockmarket has corrected from its high level. While it may remain volatile in the short term, the current level represents fair value, as it is a discount of 20% from the recent peak.

Read this FAQ:
http://www.tankinlian.com/faq/savings.html
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2 comments:

Anonymous said...

In fact the short term inflation is higher than 5%, although this may not linger for long, still the long term inflation will hover around 3.5% to 4%.
The best investment is still equities.This is the asset class that gives the best hope of beating inflation.
However, don't waste your money on fixed return endowment that the insurance companies are desperately promoting to you to invest your CPF accounts. Don't be tricked by offer of insurance protection especailly the dubious double indemnity personal accident insurance by NTUC endowment Growth policy . I heard many were unwittingly lured into this 'trap'.For these people if you can find a way to quit and sacrifice a little bit of opportunity cost, get out quickly and invest in a broadly diversified portfolio. Of course , look for an adviser who can help you design that portfolio.
Inflation is a killer and all investor must beware of it. The agents must have the responsible duty to see their clients' money work harder than inflation by at least 3% real return. You will be damned if you cheat your client of their money by camouflaging a bad product with insurance.

January 30, 2008 12:01 AM
Anonymous said...

Remember to avoid endowment plans, both single and regular. They are hopelessly doomed to inflation.
Why? becuase their return at best over long term is about 3.5%. Long term inflation rate is about 3.5%.
Also remember that investment and protection don't mix. Don't be confused by insurance agents who decieve you with insurance coverage.
You don't use your retirement fund for insurance, do you?

January 30, 2008 9:13 AM

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