Distribution of Assets
Introduction
Inflation refers to the rate at which the general level of prices for goods and services rises, resulting in a decrease in the purchasing power of a currency. In the last 5-10 years, several countries have experienced high inflation, causing significant economic and social challenges.
Source: https://www.youtube.com/watch?app=desktop&v=sIKD5x_1T2w
Impact of Inflation
These are some of the ways inflation impacts various aspects of an economy:
Decline in Purchasing Power
When inflation rises, the value of money decreases, meaning people can buy less with the same amount of currency. This decline hits low- and middle-income households the hardest, as they spend a larger share of their income on essentials like food, housing, and healthcare. For example, in countries like Zimbabwe and Argentina, where inflation rates soared to 77.2% and 124% respectively, many people struggled to afford basic necessities, worsening poverty levels.
Erosion of Savings
High inflation reduces the real value of savings. Individuals and retirees with fixed incomes suffer as their money loses purchasing power over time. In countries like Venezuela and Lebanon, where inflation rates exceeded 250%, the savings of millions were effectively wiped out, leaving them unable to cover daily expenses or plan for the future.
Negative Impact on Business and Investments
Inflation introduces uncertainty into the economy. Businesses face rising production costs due to increased prices for raw materials and labor. This often leads to higher prices for consumers, further fueling inflation. Additionally, inflation can deter long-term investments, as the unpredictability of future costs and returns makes business planning risky. In countries like Iran and Egypt, persistent high inflation has led to reduced foreign investment and hindered economic growth.
Interest Rate Fluctuations
Central banks typically raise interest rates to combat inflation. While this can help reduce inflation, it also increases borrowing costs for consumers and businesses. High-interest rates can slow down economic growth by reducing spending and investment. For example, in Argentina, the central bank's interest rate hikes have made it more expensive for businesses to borrow, slowing economic activity.
Currency Devaluation
Countries experiencing high inflation often see their currency lose value against other currencies. This devaluation makes imports more expensive, which further drives up inflation. In Lebanon and Venezuela, for example, currency collapse due to hyperinflation has made it increasingly difficult for people to afford imported goods, including essential items like food and medicine.
Risk-Free Investments
Investing in assets with returns that outpace inflation is crucial for people around the world, not just in the U.S. Inflation affects everyone, and finding ways to protect the value of money is key to building wealth over time.
S&P 500
Source: https://www.spglobal.com/spdji/en/indices/equity/sp-500/?currency=USD&returntype=N-#overview
The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States. Experts often recommend investing in diversified index funds based on broad market indexes, such as the S&P 500.
This strategy can benefit international investors as well. Although the S&P 500 consists of U.S.-based companies, many of these companies operate globally, making the index a way to gain exposure to worldwide economic growth. By investing in such funds, people can diversify their portfolios and reduce the risk of inflation eroding their savings.
The image above represents the 5-year performance of the S&P 500 index as of September 17, 2024. The index shows a steady growth with an annualized return of 14.68% over this period.
US Treasuries
Source: https://www.bloomberg.com/markets/rates-bonds/government-bonds/us
Another option is investing in U.S. Treasury securities. For people outside the U.S., U.S. Treasuries are considered a "safe haven" asset because they are backed by the U.S. government. They provide steady, reliable returns and can act as a hedge against inflation. Additionally, U.S. Treasuries can offer international investors a way to hold assets in U.S. dollars, which can be beneficial in times of global economic uncertainty or when local currencies are depreciating.
This table above shows the current yields on various U.S. Treasury securities as of September 18th 2024. It lists details about different maturities, their coupon rates, market prices, and the resulting yields.
Target Countries for Real Estate Builders Based on Rental Yields
When real estate builders plan to develop new properties in foreign markets, choosing countries with high rental yields can be a smart move. Higher rental yields mean better chances of earning a steady income from the properties they build. The list below highlights countries that currently offer attractive rental yields, making them great targets for builders.
Even if the U.S. dollar’s value drops, building properties in countries with strong local economies can still be a good investment. Builders can generate steady rental income in the local currency, which can help balance out any losses when converting that income back to dollars.
Country | Gross Rental Yield (% per annum) |
South Africa | 10.15% |
Ireland | 8.10% |
Latvia | 8.06% |
Puerto Rico | 7.83% |
Georgia | 7.85% |
Turkey | 7.13% |
Italy | 7.04% |
United Kingdom | 7.03% |
Costa Rica | 7.28% |
Colombia | 7.24% |
Last updated
