Posts with keyword Inflation→

(This post is a part of the series on Basics of Finance and Investing.)

You have bought a 1-year CD for $10,000 at 5% interest rate. After one year you collect $10,500 – a gain of $500. What is your real gain? This depends on what $10,000 can buy one year later, compared to what it does now.
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(This post is a part of the series on Basics of Finance and Investing.)

The short answer to this question is that we should invest to be able to shift our purchasing power from the high earning phase of our life to the low earning phase. Many of us earn more than we need to spend in our working life (note the italic – some of us spend more on our wants rather than our needs). It is the exact opposite when we retire – we spend more on our needs than we earn. Therefore, we must have adequate funds available when we retire to live out the rest of our life.
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Since July 19 this year, when Dow Jones Index rose to a record 14,000 points, it is down to 12,845 at yesterday’s closing (even falling below 12,600 at one point). That is almost 10% drop in less than a month, nearing the official definition of a market correction. Is this a precursor to a bear market? Here are CNN Money’s 5 ways to know:
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There is an important difference between the two biggest single expenses in your life (if you live in America): buying a car, and making down-payment for a house. While a house appreciates in value (price goes up with time, usually outpacing inflation), the value of a new car starts depreciating the moment it leaves the dealership lot. Thus, paying 20% down for a house (the median house price was $232,000 last year) is a sound investment, whereas forking out $20,000 for a family car is not necessarily so.
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Last week’s Money magazine ran a short feature on online banking, which seems to be the order of the day. Gone are the snaky queues at our neighborhood branch, often with a growling stomach yearning for a delayed lunch. This visual is still futuristic, but the day may not be that far away, with virtual banks sprouting up everywhere like wild mushrooms.
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