In our last post I talked about how oil prices are rising largely because of speculation. We saw how violent the oil prices have been through last week. There are reports which say that if (oil) trader margin requirements are raised by 25%, oil prices would fall as much as $30. The thing about commodity trading is that a few people do make a lot of money, but the common man and woman simply suffers.
Things are not always fair. Now inflation too has been rising across the world and several people are worried about it. The thing about inflation is that if you do nothing with your money and just keep it in your bank account, inflation will slowly erode it.
The best way to beat inflation according to me is to invest in assets which go up with inflation, and not just go up, but go up several times faster than inflation. In fact during such times, a few people make extremely large returns because of the assets they hold. Once again, I know I will sound unfair and even heartless but such challenging times are in fact the best times for investors.
Something which is good for an investor might not be good for someone who is keeping all his or her money in bank savings account. Inflation causes prices to rise and thus holding commodities is one of the best things to do during inflationary times. However buying commodities when inflation has peaked is not a wise thing. Instead holding commodities when they are out of flavor is what is one of the best ways to create wealth. Just look at what has happened to iron ore, copper, cement, steel over the past four years. Anybody who invested in these today would be a happy person. I have easily made over 400-500% in some of my investments which deal with commodities.
Many of you might complain and say that you didn't buy into them four years ago. However this doesn't mean you won't get opportunities in the future. This also doesn't mean that at the moment there aren't assets which are ignored by the masses. Yes, you need to have the patience to wait for a few more years. But what really is the problem of investing and waiting, if the world's richest do the same thing? Markets might go down or might go up. You should not give a damn, because successful investors only care about there own investments and not about where markets are headed. Be like Arjuna and only look at your target and not what everybody else is investing in.
To fight inflation, you need to have a long term strategy because it is something that will always be there- maybe less or maybe more. Sometime ago everybody was going crazy behind real estate companies and real estate IPOs. See what has happened to them now. See what happened to IT in 2000. History teaches us a lot, and if we spend time learning and reading about historical events we will be able to understand investing better.
Some of the most successful investors I know are not great mathematicians, economists or accountants, but regular people who read and learn from history, psychology and simply observe everything around them.
Think about assets which will go up with inflation in the future. Think about how you can benefit from it and you will get several answers.
Happy wealth creation!
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