There is a centuries old Chinese proverb that says: Give
people a hundred-year lease on a desert and they will turn
it into a garden; but give people a one year lease on a garden
and they will turn it into a desert.
The crux of the matter is the reality of time, and now that
the alarm has sounded for an inflation rate that is too high,
individuals need to re-examine the merits of their savings
plans. The question is whether time is on their side, or whether
in fact they do not have the time to ride out the high inflation
When there is high inflation one expects that returns on
investments will be high. However, when there is also excess
liquidity, returns may not be as expected.
Such times call for long term savings plans, and a curtailment
of short term savings programmes and consumer spending. The
simple reason is that the shorter the term of savings, the
lower the returns. Conversely, if you put away money for a
longer period, you are likely to earn much more.
Since you will not be spending now, you want to know that
ten years down the road, your money will have purchasing power.
In general, you are looking for a rate of return that is higher
than the inflation rate. With an inflation rate of 9.6 per
cent, just where do you go for a better rate?
Where to invest
Quite frankly, the stock market has experienced an overall
down turn, although some individual stocks held over the long
term could actually yield more than ten per cent per annum.
Such stocks are the blue chip stocks, which may represent
ownership in the leading banks for example. Mutual funds are
averaging at best ten per cent.
Vehicles that are yielding an average return above the inflation
rate are individual annuity plans. Traditional group or employer
sponsored pension plans are not yielding such high rates however.
Real estate has been a sellers market for some time. Now
may not be the best time to buy, unless you get a bargain
or a fire sale. But in any event, you would need significant
sums to begin with. And if you have, you should wait for the
market to bottom out, before buying.
Saving in a foreign currency has always been a hedge against
inflationary pressures. However, with high liquidity and high
GDP, there is another consideration. My guess is that an appreciation
of the TT dollar is a possibility.
If that happens, those who convert into a foreign currency
in the years preceding, will actually loose. Of course, I
want to reiterate, currency appreciation is merely a guess
on my part. The various scenarios may leave most of us between
a rock and a hard place but the important idea is to keep
savings always in perspective!
The first rule of a sensible savings programme is to save
first and then spend the rest. With a target in mind, small
sums, saved consistently will grow, to furnish the down payments
we need in order to provide a home and an education for ourselves
and our families.
Yes, we live in different times, but still: haste makes