How to calculate and adjust for inflation in your investment portfolio
Investment is one of the most dependable methods of accumulating wealth and securing your financial future. However, one crucial factor that many investors often overlook is inflation. Over time, inflation can erode the value of your investments and reduce your purchasing power. Therefore, it’s essential to calculate and adjust for inflation in your investment portfolio to ensure that your assets remain profitable in the long run.
What is an inflation calculator?
An inflation calculator is a tool that helps you determine the effect of inflation on the value of money over time. The calculator adjusts the nominal value of money to its real value using inflation rates. Inflation rates are the percentage increase in prices of services and goods over a given period. Using an inflation calculator, you can calculate the real value of money from a historical period to the present.
Calculating inflation in India
You can use an inflation rate calculator to calculate inflation in India. This calculator allows you to calculate the inflation rate based on a particular year’s Consumer Price Index (CPI) data. Enter the CPI statistics for the base year and the year you want to calculate the inflation rate.
For example, if the CPI data for the base year is 100 and the CPI data for the current year is 110, the inflation rate would be 10%. This means that the prices of goods and services have increased by 10% over the past year.
Adjusting for inflation in your investment portfolio
You need to calculate the real investment return to change your investment portfolio for inflation. The real return is the return on investment after adjusting for inflation. For example, if you earned a return of 10% on your investment and the inflation rate was 5%, your real return would be 5%.
Subtract the inflation rate from the nominal return to calculate the real return on your investments. For instance, if your investment gave you a little return of 12% and the inflation rate was 4%, your real return would be 8%.
Adjusting your mutual fund portfolio for inflation ensures that your investments keep up with the rising cost of living. Investing in assets that gain value over time might help you adjust your investment portfolio for inflation. These assets include stocks, real estate, and commodities like gold and silver.
Inflation is a crucial factor to consider when building your investment portfolio. Investing in assets that increase in value over time is an excellent way to outperform inflation and grow wealth. Using an inflation calculator and calculating the real return on your investments, you can adjust your investment portfolio to keep up with the rising cost of living. Remember, investing is a long-term strategy, and it’s crucial to stay invested through market ups and downs to achieve your financial goals.
To wrap up
To adjust your investment portfolio in India for inflation, use an inflation calculator, calculate inflation using the CPI, and invest in assets that appreciate over time, such as stocks, real estate, and commodities like gold and silver.