Saving despite inflation?

What should we definitely invest in now?

Created: 03/10/2022, 07:00

How can you remain financially stable despite high inflation?

Financial expert Stefan Risse explains the best savings tips in an interview.

Whether in the car industry, when buying groceries or at home.

Due to the current inflation rate, prices are rising to unprecedented heights everywhere.

Many are therefore wondering how to react to this development.

In a major interview with the news agency

, Stefan Risse, capital market strategist and author of "Inflation is coming" (FBV), explains what influence the Ukraine war and the corona pandemic are having on the global economic situation and how private individuals can best deal with each other protect against large losses.

What is behind the high inflation rate in the euro zone?

Stefan Riss: At the moment it is mainly the energy prices that are fueling inflation.

The oil price has risen sharply, which has to do with the fact that the economy came out of the Corona crisis much better than expected.

And the Organization of the Petroleum Exporting Countries (OPEC) haven't increased production enough for that.

Of course, the fear of a war between Russia and Ukraine is currently driving the oil price up.

Russia is one of the largest oil producers and, above all, one of the largest gas producers.

This also contributed to the fact that the gas price has multiplied compared to a year ago.

However, consumers are not yet feeling the effects of this, because there are fixed contracts that only allow certain price increases.

There is a need to catch up here and no relaxation is to be expected for the time being.

Groceries are also increasing in price.

This also has - you can hardly believe it - to do with gas.

Ammonia, which is obtained with the help of gas, is required for the production of fertilizer.

Some farmers are currently not cultivating land at all because fertilizer has become far too expensive.

That narrows the supply.

Grain products are becoming more expensive, which of course also includes animal feed, which in turn also causes meat prices to rise.

We are also seeing significant price increases for all products that are affected by the supply chains that are still disrupted due to corona, especially products that require semiconductors, i.e. microchips.

In addition to computers and game consoles, these nowadays also include automobiles,

Despite high inflation, you can secure yourself financially.

(Iconic image) © Christian Ohde/Imago

How does inflation develop?

Cracks: Inflation is caused by events like the ones I explained earlier.

Either the demand is increasing sharply, which can be the case due to pent-up consumption like now in the Corona crisis, or the supply is scarce for some reason.

Both can currently be observed.

Whether this inflation turns into a permanent one then depends on whether wages rise accordingly.

In the 1970s we had higher inflation rates, initially also triggered by rising energy prices.

Then the unions demanded compensation for this inflation in the form of higher wages.

Higher wages then drove up production costs and, in turn, consumer prices.

This then becomes a wage-price spiral.

Not much of this can be observed in Europe yet, but I expect it to, because the wages of the lower earners have not increased enough in the past 15 years.

This process can already be observed in America.

And even if the wage demands in the most recent collective bargaining rounds in Germany were still subdued, remember that the minimum wage will also be raised sharply to twelve euros per hour.

This will also leave its mark on the prices.

What can consumers expect now?

Cracks: Consumers will have to pay higher prices, there is no way around it.

One can only hope that the state will provide relief, especially for the less well-off.

According to everything that can be heard and read, the EEG surcharge is supposed to be abolished by the middle of the year.

A first step in the right direction.

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What costs will consumers face in the near future?

Cracks: Prices should initially continue to rise, but could calm down in the semiconductor area.

High-tech products, which meanwhile also include cars, could then become somewhat cheaper again in the second half of the year.

The hope is based on the fact that the supply chains should then be somewhat smoothed out again.

However, the omicron variant and a possible spread in China, which are driving a zero-Covid strategy, remain a risk.

If China sealed off again, and we have seen that a single port is enough, then we will no longer be able to relax.

In terms of energy prices, the conflict between Russia and Ukraine will certainly play an important role in future developments.

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Saving money: top tips

Cracks: For savers, inflation has very serious consequences that many don't take into account.

If you have an average of 4 percent inflation over five years and you don't receive any interest as compensation, then in real terms you are already losing 18 percent of your wealth in this period.

This does not mean that 10,000 euros becomes less, i.e. suddenly there is a lower amount, leaving out the bank’s custody fee, but after five years you can still buy as much as you currently do for 8,154 euros.

That's why it's extremely important now to invest in assets that benefit from inflation.

Fixed-interest investments do not do this, and since they currently bring no or only very little interest, they are already a pure waste of money for the savings of many Germans.

Now for the money-saving tips:

1. Investing in stocks:

I emphasize investing, not speculating.

So buy it and keep it for a long time.

It doesn't have to be in the form of individual stocks, there are also funds, either actively managed, if possible by fund companies that have had good performance in the past over a longer period of time, or ETFs on an index such as the MSCI World.

Because stocks are also real assets that rise with inflation.

Everything that a company owns, real estate, machines right up to the brand name, then also increases in price.

2. Gold purchase:

In the past, the precious metal was always a very good protection against inflation because, in contrast to paper money, as we know it almost everywhere today, it cannot be infinitely multiplied.

If inflation rates stay higher, gold should benefit.

But you don't have to buy this physically, there are also funds here that make this possible, such as Xetra-Gold, which is available on the Frankfurt Stock Exchange.

However, please never invest your entire fortune in gold.

It has one major disadvantage.

There is no distribution such as interest or dividends.

So there is no reinvestment of current income, which is the strongest force of long-term investing.

3. Buying a home:

In the past few years, rents have skyrocketed, especially in urban areas.

To protect yourself from these, buying your own property for residential purposes is a good idea for anyone who can afford it.

Of course you can also buy real estate for rent, the location is very important here and that the purchase prices are not already completely inflated, so that the rental yield that you achieve is only meager.

I advise against open or closed real estate funds due to the lack of transparency and often far too high costs.

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