Understanding Inflation
What is Inflation? The general rise in prices of goods and services over time is what we call inflation. This means that the purchasing power of your money decreases as prices increase.
Inflation in South Africa: Historically, South Africa has experienced an average inflation rate of around 6% per annum. Recently, inflation has been around 5.1% as of June 2023, down from a peak of 7.8% in July 2022.
Impact of Inflation on Savings
Erosion of Purchasing Power: Inflation reduces the value of your savings over time. For example, if you save R100,000 and inflation is 5%, the purchasing power of your savings will decrease by R5,000 in one year.
Low-Interest Savings Accounts: Leaving money in low-interest savings accounts can lead to a loss in purchasing power as the interest earned may not keep pace with inflation.
Impact of Inflation on Investments
Real Returns: To grow your wealth, your investments must earn returns that exceed inflation. If inflation is 6% and your investment returns 8%, your real return is 2%.
Risk and Returns: Higher returns often come with higher risks. Investing in stocks or the JSE can offer higher returns but also involves more risk compared to bonds or fixed deposits.
Strategies to Mitigate the Effects of Inflation
1. Diversification
Spread your investments across different asset classes like stocks, bonds, real estate, and commodities to reduce risk and increase potential returns.
A diversified portfolio can help you maintain growth even during inflationary periods.
2. Investment Selection
Stocks: Historically, stocks have provided higher returns over the long term but come with higher volatility.
Bonds and Fixed Deposits: These offer more stable returns but may not always keep pace with inflation.
Real Estate: Can provide a hedge against inflation as property values often rise with inflation.
3. Fee Management
High fees can significantly reduce your real returns over time. Opt for low-fee investment options to maximize your savings.
A 1% difference in fees can result in up to 30% less in retirement savings over time.
4. Long-Term Perspective
Investing for longer periods allows you to take on more risk and potentially earn higher returns above inflation.
Historically, longer-term investments in the stock market have provided positive returns despite short-term fluctuations.
Inflation is a significant risk to your long-term financial goals, but with the right strategies, you can protect your savings and investments. By diversifying your portfolio, selecting investments that beat inflation, managing fees, and adopting a long-term perspective, you can ensure that your wealth grows in real terms over time. Remember, inflation is not just a financial concept; it affects your ability to afford the things you need and want in the future.
Additional Tips for South Africans:
Monitor Inflation Rates: Keep an eye on South Africa's inflation rate to adjust your investment strategies accordingly.
Consult a Financial Advisor: Seek professional advice to tailor your investment plan to your financial goals and risk tolerance.
Stay Informed: Continuously educate yourself on personal finance and investment strategies to make informed decisions.
By understanding and addressing the impact of inflation, you can safeguard your financial future and achieve your long-term goals.
Questions after the interview:
At the end of an interview there is usually an opportunity where you can ask any questions you might have. This is a great opportunity to show the interviewer that you are interested in the position as well as the company. It is a good idea to prepare a few questions before the interview – this can be done while you are doing research on the company.
Your questions should show the interviewer that you are a good candidate for the position. Try and avoid questions that are based on your personal needs and preferences, for instance:
- How much leave will I get in a year?
- Will I be considered for promotion in my first year?
- When will I get an increase?
- What time can I leave in the afternoon?
These questions are inappropriate at this stage and will probably raise concerns on the side of the interviewer. Should you be the successful candidate then all these questions will be answered in your letter of appointment so don’t waste this opportunity by asking these basic questions.
If the position is an entry level job or very junior then you are welcome to ask questions in line with the position, for instance:
- Why did the previous person leave the position?
- What would the successful person be tasked to do in a typical day?
- How does this position fit into the department and / or company?
- Could you explain the company structure to me?
- Is there any further education assistance or support?
If the position is more senior then you can prepare question around the following themes:
- current issues that will face the successful candidate;
- inter-personal challenges in the department;
- any process, technology or people challenges that needs to be attended to urgently;
- key result areas that need urgent attention in the first few months;
The above information should get you started. Prepare a few questions so that you can show your worth. Good luck with your interview!
