Monday, March 4, 2024
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Kavan Choksi Professional Investor Discusses How Inflation Impacts Investments


Inflation implies to a way of measuring the change in price of everyday goods and services, right from movie tickets and clothing to food and fuel. As Kavan Choksi Professional Investor mentions, prices typically go up over time, and hence the expenses of weekly groceries, for instance, will go up over the year. If it is 10% more expensive than it was 12 months ago, then that is the approximate rate of inflation in food. Even though high inflation can have negative consequences, it is not always a bad thing. For example, if people do expect inflation to go up in the near future, they may purchase more goods and services, ultimately stimulating economic activity and driving growth in many sectors. 

Kavan Choksi Professional Investor briefly discusses the impact of inflation on investments

Gaining a good understanding of their risk tolerance is vital for the long-term investment success of any investor. They need to orderly set personal goals towards determine the level of risk they are willing to, as well as able to take. As a result, their risk tolerance would impact the types of assets they own, and even shape their investment portfolio.

For instance, if one is a retired investor who has spent their entire life building a business, they would have the desire to preserve their wealth and place a high value on stability. Such investors are likely to have lower risk appetite, and often tend to accept lower investment returns. Older investors typically have a shorter time horizon as well, and therefore capital preservation is usually the best strategy for them. The portfolio balance of these investors tends to be skewed towards more predictable and less volatile assets where the limited potential for income and growth is offset by the relatively high security, as well as liquidity provided by them.

As Kavan Choksi Professional Investor mentions, in case prices go up faster than the wages, the money of an investor will not go too far. For people on welfare benefits and retirees, the income often remains fixed for a long time. This can majorly impact their daily spending, especially on fuel and food, as such prices are usually the first to react in inflationary periods.  Inflation may also make it much more difficult for various businesses to sell off their services and products as prices may change pretty rapidly. If businesses do not plan their budgets in advance, it can lead to instability in the wider economy. This might even affect people’s willingness to invest in these companies.

In case a person makes an equity investment in a company, they typically become shareholders with a claim to a proportion of the assets and earnings of the company.

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