Economics Tuition Helps In Making The Right Investments To Hedge Against Inflation

Economics Tuition Helps In Making The Right Investments To Hedge Against Inflation

Many people take economics tuition for various reasons. Some people take economics tuition to learn investments which can hedge against inflation. Inflation refers to a sustained increase in the general price level. High inflation will decrease the real value of money. To put it somewhat differently, when the general price level rises substantially, individuals will be able to buy less goods and services with the same amount of savings. By allocating a certain portion of savings to good investments, one can preserve the real value of savings. Economics tuition helps in making the right investments to hedge against inflation.

Low Inflation and High Inflation

In today’s society, there are a myriad of investment products. Many of these investment products can be used as a hedge against inflation. However, these investment products differ substantially in terms of several factors such as risk and returns. Some investments are lower risk and yield lower returns. For example, government securities which include bonds and bills are lower risk and generally yield lower returns. Some investments are higher risk and yield higher returns. For example, penny stocks are higher risk and sometimes yield higher returns. Economics tuition can equip individuals with the skills and knowledge to make the right investments to hedge against inflation, assuming that the economics tutor has working experience in the field. For example, in emerging economies such as Vietnam, inflation is generally high. Therefore, returns on investments must be sufficiently high to hedge against inflation. Government bonds generally yield lower returns and therefore are generally not able to hedge against high inflation. In contrast, corporate bonds generally yield higher returns than government bonds and therefore are generally more appropriate for hedging against high inflation.

Very High Inflation

In the event of very high inflation, neither government bonds nor corporate bonds are likely to be able to hedge against inflation. In this case, Real Estate Investment Trusts (REITs) which generally yield higher returns than government bonds and corporate bonds are likely to be a better hedge against inflation. However, there are many different types of REITs which differ substantially. For example, Cambridge Industrial Trust yields higher returns but has lower liquidity. In contrast, Ascendas Industrial Trust yields lower returns but has higher liquidity. In this example, one needs to consider the relative importance of returns and liquidity to decide between Cambridge Industrial Trust and Ascendas Industrial Trust. Apart from returns and liquidity, one also needs to assess the different levels of risk associated with the different REITs in terms of factors such as the amount of cash reserves, the strength of the substantial shareholders, market capitalisation, etc. Economics tuition helps in this respect to a large extent. This is particularly true if the economics tutor has experience in in the field. An economics tutor who has only teaching experience is unlikely to be a great help. For those who have a long time horizon, I recommend Cambridge Industrial Trust as a hedge against inflation due to several factors such as the higher returns, the lower volatility of the share price, the re-investment scheme, etc.

The above are some examples of the usefulness of economics tuition from a good economics tutor in making the right investments to hedge against inflation.

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Principal Economics Tutor: Mr. Edmund Quek