Different kinds of inflation?

You might remember that one of your investment aims is (or should be) to get a return on your investments that is greater than the inflation rate. If you succeed in doing this, you get what is called a real return on your investment.
To get a real return on your investments is in itself a daunting task. To make it more difficult or confusing, there are different inflation rates for lower income groups, higher income groups and pensioners. For a country as a whole, only one official rate of inflation is normally published.
What is inflation?
There are many definitions for inflation, but we shall keep it as simple as possible. Inflation is the continual rise in the prices of goods and services with the result that the buying power of your currency gets smaller all the time. In practical terms it means that for the same amount of money, you can buy less goods and services. Immediately it is clear that people with a fixed total income, will be affected by inflation—sometimes even seriously affected. It is thus clear that inflation has a major impact on financial planning for your old age. It has indeed!
One of the methods for measuring inflation is to use the consumer price index (the CPI) and the calculated rate is published as headline inflation CPI. The consumer price index is based on a basket of expenditure like housing, medical expenses, clothing, education, transport and others.
The percentage of total income spent on these expenses could be different for certain groups of the population like the higher income group, the lower income group and pensioners. It is obvious that pensioners will spend less on education but more on medical expenses. Lower income group spend more on food than the higher income group.
It follows that the rate of inflation applicable to you could be different from the published headline inflation rate. Even the region where you stay has an effect on the inflation rate you experience.
In a table published by “Collective Insight Autumn 2012” the following insight is given: January 2000 to December 2011 average. Headline CPI 5, 8% and the inflation rate for pensioners for the same period 6, 5%.
This means that a pensioner who wants to get a real return on investment should beat the inflation rate of 6, 5% and not the published headline CPI of 5, 8%.
Even at the risk of sounding a little insane, you have a personal inflation rate that could differ from the official rate of inflation.
It is this inflation rate that you want to beat with the return on your investments!
Ask you financial adviser to help you to determine (or have an indication of) your personal inflation rate. Only if your personal return on investment beats your personal inflation rate, you have a real return on your investment (before tax).
If you have difficulty in calculating your personal inflation rate, don’t despair. Beat the official inflation rate in the meantime!



It is my pleasure to announce that my book “Live before you die” has been chosen one of the Nabe Pinnacle Book Achievement Award winners for Winter 2012. This was in the category “INSPIRATIONAL”

To view the Pinnacle Award Winners page visit http://tinyurl.com/8yh9xbs

Frans Human Easter 2012

When last did you review your Investment Policies (Principles)?

Recently many investors in South Africa got quite a shock to learn that there would be a change not only in the way dividends will be taxed in future but also that the rate of the new dividend tax and the effective tax rate on capital gains tax were higher than the market anticipated.

This will affect all investors and even more so those of us who are dependent on investment income for our retirement.  If you are trading with shares (equity) in
your investment portfolio, you could find that dividend tax and the increased
net capital gains tax could have a negative effect on your income.

This means that if your investment policy was to rather earn dividends than interest, you might want to review this investment policy (principle).

The investment scenarios are constantly changing. If there are principal shifts in the market place, you might want to adjust your financial planning. In my view you should review your investment policies and investment principles at least once a year.

Do this review with a trusted consultant with the necessary expertise. If you would be more comfortable with an objective review, get it. Finally, once you have determined that adjustments have to be made, make sure what the costs will be. If this is acceptable, THEN DO IT!

Book available on Createspace & Amazon

We are proud to announce that the book is finally available from Createspace & Amazon.com. Click here to order your copy now.

Book almost available

We are in final stages of negotiations to get the book in book stores across the world and available on various online stores. The book will also be available for download on your Kindle™.

As soon as the book is available more information will be published here.

If you would like to be notified of when the book is available please send an email to admin@franshuman.com