Interest and inflation rate. what are they?? 0-o
Interest is the price established in the funds market: It is the cost of borrowing money, the price of credit. -Kimelman
Inflation in economics, is a sustained increase in the general price level of goods and services in an economy over a period of time.
Current Scenario (Philippines):
The current interest rates in the banks range from 1%-2% annually, current inflation rate range from 3%-5%. For a wise investment vehicle, you should choose an instrument that would yield a higher interest rate than the inflation rate.
E.g. 100 pesos in the bank would only yield 1 peso interest annually (assuming a 1% interest rate) less 20% tax. you are left with a 80 cents profit. When inflation comes in the next year (4%), the real value of your money is no longer 100 pesos. it is 4% less.
So is keeping ALL your money in the bank a wise move?
Bonds, not James bond
Bonds are well, debt. When we make loans, we sign a loan agreement that states how much money we borrowed, how long the loan will last, and when and how the money will be paid back. This piece of paper is good in court and prove the lender’s right to be paid back the money lent. PLUS INTEREST.
Stocks a.k.a Equities
“Equities are ownership. When you buy equity, you do just that – you become an owner of the company. You have a right to a portion of the profits it decides to pay out (these are called dividends)”
Stock market – where equities are traded