The most important thing to do after building wealth is to make sure that you protect it. Some ultra-wealthy individuals say that building wealth is arguably easier than protecting it. There are a lot of things that threaten your wealth, from socialist governments to inflation. This is a step by step guide on how to protect your wealth from inflation in South Africa.
Inflation is sometimes called “taxation without legislation”. The current inflation rate in South Africa is hovering around 4%, this means that your money loses 4% each and every year. 4% is a lot, this means that your money loses 20% of its value within 5 years and 40% within 10 years. It would take roughly 25 years before your money completely loses its value.
1. Investing in stocks
There is a reason why most investors have backed companies like Amazon for so long even though they weren’t making any profit. All that matters is that the value of the company goes up, dividends are not that important. This has ushered a new era where being profitable is an option, especially for tech start-ups.
Amazon is currently growing at around 25% per quarter, you won’t see those kinds of returns on more traditional investments. This growth rate will not only protect your wealth but will substantially increase it. Some stocks are safer than others, choose stocks that are pretty safe and don’t invest in high risk stocks.
2. Investing in property
Over 80% of millionaires have some of their investments in property, property just makes that much sense. The value of property generally appreciates over time and you can earn rental income from it in the meantime. Property was one of the most common ways to build wealth in the past decades, it still is today.
Property usually appreciates at a rate that is much higher than 4% per year and you will earn rental income from it. This rental income can be used to buy more property or for philanthropic causes.
3. Investing in commodities like Gold
Gold generally increases in value over time, however, there are times whereby the price of Gold might drop. This commodity has been used for thousands of years and will not stop being used anytime soon. In fact, it might gain a lot more value over time as the supply shrinks from mining.
4. Inflation beating investments
There are investments that have been created specifically for the purposes of wealth protection. These investments are super safe and stable; however, they don’t produce high returns. Government bonds and corporate bonds are considered to be the safest asset classes respectively. You can invest up to R5 million in the RSA retail savings bond and expect to earn an interest of 7%.
The good thing about bonds is that there is inflation linked bonds, this means that your wealth will always be safe from inflation. Even in the event of hyperinflation. Other stable investments include unit trusts, mutual funds and fixed deposits.
Conclusion
This was a guide on how to protect your wealth from inflation. All you have to do is to invest it in assets that grow at a rate that is higher than the inflation rate. Do you have any thoughts and questions? Comment below.
