ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Earning returns is important as the investor should be able to maintain his or her purchasing power. Inflation raises prices of the consumption basket, and the investor aims to earn returns at least higher than current and expected inflation rates in order to maintain its purchasing power.

Detailed explanation-2: -With this idea in mind, investors should try to buy investment products with returns that are equal to or greater than inflation. For example, if ABC stock returned 4% and inflation was 5%, then the real return on investment would be minus 1% (5%-4%).

Detailed explanation-3: -The best time to buy silver or gold is when the currency is losing value during times of inflation. When the dollar weakens, commodities become more expensive (more on that later). Historically, silver has performed better than gold during inflation.

Detailed explanation-4: -Higher inflation – and higher interest rates to curb them – has an adverse effect on most asset prices. The problematic scenario for investors is that a simplistic ‘traditional’ portfolio of equities and conventional bonds is not inflation-resilient. This makes the investing environment difficult.

Detailed explanation-5: -Most investors would view an average annual rate of return of 10% or more as a good ROI for long-term investments in the stock market.