Richard Cayne Meyer on Inflation and Your Wealth

Wealth creation is a dream shared by millions. Leaving behind a considerable legacy for future generations is an ideal situation most individuals work to achieve over the span of their lives. However, most people end up falling prey to the ‘wealth effect’. Richard Cayne from Meyer says that wealth effect is a situation when a person believes that there has been an increase in his/her wealth, due to which he/she starts spending more lavishly. This perception of an increase in wealth essentially happens when someone witnesses an increase in the value of their assets. However, Richard Cayne from Meyer emphasizes that an increase in the value of your assets should never be taken on its face value; rather it should be adjusted for inflation.

Inflation is a term most of us are familiar with, and it relates to an increase in the prices of goods and services. Inflation is a natural part of every country’s growth story. And, while most economies try their best to curb their inflation rates, keeping them to a bare minimum, most are unable to avoid inflation completely. Richard Cayne from Meyer comments that this essentially translates into the fact that as the prices of goods and services go up, the purchasing power of money goes down. So, even though your assets may have increased in value, one must look at their real return on their investments after deducting inflation.

Richard Cayne from Meyer mentions that inflation should be a top consideration for anyone trying to assess their wealth, adding that it is one of the major causes of wealth destruction. For instance, if you could buy a dinner for two for a $100 today, considering a 4% inflation rate, you would need to shell out a minimum of $108.16 two years from now for that very same dinner. Therefore, Richard Cayne from Meyer says it is essential to take inflation into account when you begin assessing the increase in the value of your assets.

Richard Cayne from Meyer opines that the best way to combat the negative effects of inflation on your wealth is to find investment vehicles that offer a rate of return that is higher than the rate of inflation in your country. For instance, if your investment portfolio adds up to US$10,000,000 and it achieves a growth of only 2% while inflation is up by 4%, then your purchasing power would have actually gone down by US$200,000 despite having made a profit. Thus Richard Cayne from Meyer suggests, you should ensure that your asset portfolio offers an increase in value that at least matches the rate of inflation in your economy in order to make sure that your wealth base is maintained in the long run.