One of the steadiest risks involved in your investments is inflation. Inflation is the increase in the cost of living or decrease in the value of money, expressed as a percentage increase over last year's prices. Inflation is a simple concept that punishes the people who ignore it. Even small changes in the inflation may make a massive difference in the amount of money you have over time. You will still have the same amount of cash, but it may not buy as much. It's easy to purchase a movie ticket for 20 rupees, but not so easy if the price climbs to Rs.40. Before you plan a secret attack on the inflation rate, keep in mind that it is normal and usually works its magic at around 3 to 4 percent every year. With the current economic situation, inflation is not such a factor. On the other hand, job layoffs and pay freezes have left consumers with fewer cash in their pockets, which carries a risk all its own. What finally counts is whether your investments can beat the inflation rate or not. An investment that is too conventional can actually leave you at risk. If you have got all your cash in a bank account, it may seem reassuring to know the interest rate is guaranteed, but say that rate is very less. It may not keep pace with inflation, and you could end up losing ground.
Although this kind of risk does not get much attention but it is really the most important one. If you set your sights on a new house or a college education but do not achieve the goal, you might feel like a loser. Some investors, in trying to avoid losses, or trying to make sure that they own the best stake end up inviting the biggest risk of all that of not being able to meet their financial goals. We are definitely not saying that investors should be satisfied with subpar performances from their investments. But do not lose sight of the fact that your primary goal should be to meet your future financial needs.
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