Aspirational Inflation – The Silent Wealth Eroding Machine
We have all learnt about demand side and supply side inflation in our college days. But none of the teachers, books or courses taught us about aspirational inflation. It’s pretty simple to understand – our desire for better lifestyle, better gadgets, and better travel keeps on getting better with every passing year. A simple back-of-the envelope calculation suggests that inflation levels for our generation, more so for the ’empowered, educated and working class’ is close to 25% and not the 9% that gets reported by the government.
GreenEdge Wealth Services’ View – How to Tackle Aspirational Inflation?
Most of us are faced with a situation where salaries go up by 15% and expenses go up by 25% every year. So it becomes extremely important to earn an expense adjusted return of ~12-14% just to maintain your current financial position. Given that real estate and gold are in multi year downturn, equities are the only place where you can do that. One can benefit from investing in businesses that benefit from aspirational inflation. Titan, Jockey and Cera are classic examples of such businesses. The aspirational Indian youth have thronged the stores to buy products of these companies irrespective of the prices. Rs. 1lac invested in these stocks would have yielded 40lac, 27lac and 36lac over a 10 to 15 year time horizon.
While a lot of you would feel that equities are risky, just calculate your net worth (including gold, real estate and any possible inheritance) and see what proportion of your total net worth is in stocks. For most, this proportion won’t be more than 10% and you may still feel that your equity portfolio can make your financial health risky!