How best to invest money in a time of rising inflation? The coronavirus pandemic, repeated lockdowns, missing component supplies, energy crisis, declining economic performance. These are all factors that fundamentally affect inflation growth. And in the last few months of 2021, it climbed to an incredible 5.8% and tends to rise even further. Are you thinking about how to react to this situation and protect your savings from inflation?
What is inflation?
Inflation is a state of the economy where prices rise repeatedly over a certain monitored period. You can best compare it using the consumer price index. You simply buy a basket of consumer goods and repeat the same purchase three months later. The price difference clearly indicates the rate of rising inflation or, conversely, deflation. Inflation is a natural phenomenon supported by most economists. Its ideal level is around 1%, but inflation of around 6% and above is already very dangerous and destabilising.
What is stagflation?
Some economists believe that our economy is gradually entering a phase of so-called stagflation. What is actually happening to our economy? Stagflation manifests itself through a high rate of inflation, which leads to rising prices for goods, services and energy and a subsequent higher rate of unemployment. The main cause of rising unemployment is weaker economic performance.
Rising inflation devalues savings
Your savings in a current or savings account are losing value due to rising inflation. Some banks have announced increases in interest rates (for example, Air Bank increased the rate from 0.75% to 1.5% from 22 November 2021 with regular card payments), but this is not enough to cover inflation. Trinity Bank and Moneta Money Bank had an interest rate of 2.5% at the end of 2021, which is the highest on the market, but again, it is not enough to cover inflation.
Therefore, use a savings account as storage for your most essential emergency fund, which you can safely tap into in times of greatest need. Rising inflation brings economic instability and to some extent also uncertainty. Look for more effective options to store higher financial amounts.
💡 Tip: Also read the article on fighting inflation: 8 ways to protect money against inflation
Rising inflation. How to invest money effectively?
Buying real estate, anti-inflation bonds, cryptocurrencies, shares or gold? Each of you has the opportunity to decide based on your financial capabilities and also trust in individual investment options. Investing in gold or shares does not require high financial sums. And moreover, if you invest regularly, you have a realistic chance of interesting appreciation.
Investing in silver or gold has always been a clear choice during periods of economic instability. Although gold does not generate a profit, it serves to preserve the value of currency. Buying anti-inflation bonds is also suitable for small savers.
More adventurous individuals can choose to invest directly in shares. If your financial situation allows, consider buying property, even financing it with a mortgage. Rising mortgage rates and property prices only confirm that it is a financially sound investment.
Rising inflation increases interest in alternative investments.
Inflation reached a magical 5% in September and has a tendency to rise to an incredible 7% in the last months of the year. People are reacting to this situation in their own way. Following the example of American savers and investors, who can boast of making good money on stock market investments, they are choosing investments in shares (u amerických témat stocks).
The course also covers the purchase of bonds and investment in property for both living and renting. Of course, current economic developments are also increasing interest in alternative investments.
Owners of free financial funds are increasingly focusing on investing in historical cars, valuable stamps (ideally foreign ones), jewellery, expensive handbags, investment alcohol or historical coins. Historic veteran cars were recently rated in a survey as one of the best investments over the horizon of the past 10 years. Their average appreciation reached 20 to 25% per year.
However, this type of investment requires an interest in the specific commodity and some expertise in the field. Only then can you be sure that your investment is considered, has a tendency to grow in the future, and increases your invested funds.
If you decide to buy a classic car, you should know about limited editions, which are valued and attract interest from collectors. The car’s price is also increased by ownership by a famous person or an interesting story. The key to success is the ability to maintain the car properly and to garage it.
In contrast, buying investment alcohol does not have to be so complicated, but you must follow certain rules. Again, the rule is to buy limited editions, the possibility of proper storage, buying a quality product that is also appreciated by experts. Also monitor advertising for the chosen brand, information about its manufacturer and public awareness of the brand.
💡 Tip: Also pay attention to the article regarding small investments: 3 Tips: What to invest small amounts in regularly?
Rising inflation versus a beneficial investment
To combat inflation, look for suitable market instruments. Inflation-linked bonds offer protection for your finances; they may not generate a profit, but they protect your money from rising inflation.
Another reliable tool is buying investment gold. This serves to protect your currency during economic fluctuations. Its advantage is that you can invest in it even as a small investor; its disadvantage is the need to wait for a suitable opportunity to sell it.
Buying bonds is safe, but it will not bring you a large profit at present. An alternative is a combination of investments in bonds and shares. However, when buying shares, realistically consider which companies have a chance to develop efficiently in the future.
Buying shares (u amerických témat stocks) in an American company like Tesla, or other companies involved in producing pharmaceuticals, medical products, or IT technologies, can be interesting. However, many retail investors have entered the stock market this year, and many experts are already warning that it is over-saturated and could collapse.
From a long-term perspective, buying land and real estate will also bring you a profit. Even larger development companies are currently focusing on the construction of rental housing, which is a slight departure from the past when there was an effort to build and sell new flats.
Financial analysts always recommend working with a diversified investment portfolio, which eliminates possible risks. The financial market is currently changing from day to day. Based on your financial capabilities and the size of your savings, look for the possibility of combining a safe investment with a smaller return in a real estate fund and an investment in shares, which is riskier but can bring you a greater profit.
