Warren Buffett: This Is How Most People Can Change their Fortune In 2023, Start Doing This Tomorrow
It does not matter if it is about a company, individual, politician, or investor; inflation is a serious concern for everyone. It has been almost 2 years that we are hearing everyone talking about inflation. This video is about different categories of investment and their ranking during inflation to help investors make better decisions and beat market just like Warren Buffett. All the information in this video is compiled based on Warren Buffet’s rationale and advice , Buffett is 92 years old investor.
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Cash: Cash is considered to be the worst investment during inflation. Warren Buffet is not the only investor who thinks holding cash is a bad idea during inflation. His fellow billionaire Ray Dalio has the shared the same views with an attractive quote i.e. Cash is trash. This is because cash depreciates during inflation.
Being an investor, one of the major things is to think about investment returns. It is referred as the philosophy behind calculating return on the investment. It is pretty simple. For instance, your investment gets you 10% return annually. It is great, right? But hold on, it relies on the rate of inflation. To get the real rate of return on investment, you need to calculate the inflation impact and then subtract it. If inflation is 7% and investment return is 10% then your real return turns out to be 3% only. This does not remain exciting anymore. This is why we see that cash is at the bottom of this hierarchy. The reason is that return on holding cash is zero. Hence, holding onto the cash for longer time period enables the inflation to work against you.
Bonds: Next in hierarchy or you may say above cash is the bonds. According to conventional investing wisdom, bonds are considered to be one of the safest investments. However they are not. Buffet argues that bonds are not that safe when you look at them related to inflation impact. Let us explain this point. Till the date this video is made, yield on a 10 years US bond is 3.81%. Therefore, if you purchase a 10 year bond, you will be locking 3.81% annual return for the next 10 years. We assume that inflation averages 4% over the upcoming decade, you will be having annual return of -.2% after the inflation impact.
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