Why do people put fish in kettles?
Reviews with wealthy clients typically focus on tax planning, inflation and assets. By far, inflation is the topic least well understood
John Maynard Keynes wrote ‘By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens’
Most people only have a vague notion of the existence of inflation, and absolutely don’t get its sheer magnitude, and what it means for their long term wealth
There are 3 particularly dubious ways in which governments ensure that inflation numbers end up being lower than the true increase in the cost of living (see shawdowstats and others):
Substitution is where statisticians replace something that has gone up a great deal, with something that hasn’t
Geometric weighting is where the authorities include something that has gone up a lot but as an inappropriately low percentage of the calculation
Hedonic adjustment is when an item is reduced in price for the purposes of the inflation calculation because, it is argued, you are getting more for your money, which ‘means you are effectively paying less’ (yeah, right!)
Then there’s ‘shrinkflation’, where a company reduces the size of its product, but sells it for the same price (think Cadbury’s Crème Eggs and Walkers crisps)
Wealthy families know all this, and use it to their advantage
Our smartest clients know that when inflation rises, the value of cash falls, as the price of ‘things’ increases, so they invest in the very things that are going up in price
It’s never been more important to understand what’s happening in finance, and to arrange your affairs accordingly. It isn’t as hard to do as you think, and you’re only a few hours away from achieving it
Review your family legacy planning with our team of Chartered Tax Advisors for FREE Hour here
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