Inflation rose to 4.62% in October, resulting in distress among crores of Indian savers. Inflation can be defined as a generalized rise in prices which can affect your standard your living and of course, finances. As financial advisors, you must ensure that your clients can handle inflation otherwise they might end up in a debt trap. Here are 3 useful tips
1. Follow a budget
Developing a budget for your clients and more importantly, telling your clients to stick to it is one of the best methods to deal with inflation. This will make sure that they keep track on their spending habits and don’t splurge beyond their limit.
Financial experts must take into account things which are usually affected by inflation such as petrol, food items, clothes, etc. and set a spending limit. Ask clients to keep aside funds at the start of the month and adhere to the limit fixed so that they don’t dip into their retirement savings or emergency fund.
2. Stay invested for the long-term
Gains from equities in the long run are connected to corporate revenues. These returns adjust to inflation in due course as firms increase rates of goods and services they provide. Equity investors will not feel the impact of rising inflation in the long term. But they may go through market volatility in the short term. Hence, advisors must suggest their clients to stay invested for at least 5 years.
3. Choose gold and international funds
Gold is an effective safeguard against inflation; however the price of this precious metal increases simultaneously with an overall price elevation in the economy. Hence, financial experts must not allocate more than 10% gold in their clients’ portfolio. Advise them to opt for mutual funds which invest in global markets. These funds generate higher inflation-corrected gains as they are linked to foreign currencies.