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Isaac Chan
07 Jun 2019
Business at NUS
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Loh Tat Tian
13 Nov 2018
Founder at PolicyWoke (We Buy Insurance Policies)
NPV takes into account inflation. So definitely, you would want your investment to be nett positive after inflation.
Another way to calculate it would be to check the NFV. Since both takes Into account inflation.
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forYes you definitely need to take into account NPV whenever you calculate your returns. This is because of the following factors.
(1) Inflation
This is a commonly understood principle where inflation will erode the purchasing value of your money over time. So as Tat Tian has mentioned, you need to look out for this.
(2) Opportunity Cost
Opportunity cost here would refer to the best alternative forgone by choosing a particular course of action. For example, if you only invested your money in stocks, then the opportunity cost of your investment would be the best returns from other asset classes such as derivatives or commodities that you have forgone because of your investment in stocks. Opportunity cost is a powerful principle which runs deep in finance and investing. Perhaps next time in your investments, look out for the opportunity cost of your decisions as well.