Planning your investment: Step 3 - Know the concepts of investing: Impact of Inflation and Taxes
Proper planning and ensuring a minimum average rate of return on investment in the longer term is also crucial as the money you have today may not be able to buy you the same amount of things in the future. This is because inflation reduces the value of money.
Although you may earn a return on your investments, the actual value of your investments may be reduced due to the effect of inflation.
The investment goal is for your money to grow above the rate of inflation.
Tax will also reduce your return on investment unless your investments are tax exempted.
Therefore, you should invest in an asset which allows you to get the best return after taking into consideration the effect of taxation and inflation in the longer term.
Reprinted with permission from BankingInfo (A Consumer Education Programme by Bank Negara Malaysia)
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