Here’s how to save
By Daniel Saurenz
May 13, 2022, 2:01 pm
Rising prices are here to stay. However, falling prices on the stock market now offer opportunities to invest your money sensibly and cheaper than before.
The shock to oil, gas and other commodities catapults the cost of living to the sky. However, central banks have been mixing the inflation cocktail since the 2008 financial crisis when they created huge inflationary potential with negative interest rates and buying programs.
For a long time, only financial asset prices have risen, but since early 2020, crown-related bottlenecks and partially state-funded demand have pushed inflation to rise faster and faster. Meanwhile, a dangerous stagflation looms: a stagnant economy with high inflation.
Not only consumers, but also savers suffer from inflation: “With interest rates close to zero percent, inflation at seven percent means that 3,500 euros of the 50,000 euros in the account disappeared after 12 months”, says Stefan Risse, author of the book “Inflation is coming”, of course. Investments with potential inflation protection are therefore required.
Various types of inflation protection
In the case of inflation-linked bonds, the face value, which is the amount that the issuer of the bond owes the buyer (creditor) of the bond, is usually tied to the consumer price index. This protects the principal and interest from inflation. Numerous funds and ETFs rely on these documents. But beware: if the level of yields rises, they too will suffer price losses. They also offer real yields, but are currently negative: the inflation-linked federal bond maturing in 2033 yields minus 1.5 percent.
The S&S GSCI commodity index has risen more than 45% over the past 12 months. The boom is powered mainly by oil and gas. Investing in commodity indices has a great advantage because it focuses on the main factors of inflation. There is also a special bonus in the current environment: as the current prices of many commodities are higher than the futures market prices after the recent hike, additional income is generated for funds and certificates that trade via futures contracts.
Although commodities are considered volatile, rapid relaxation is unlikely. Tilmann Galler, market strategist at JP Morgan Asset Management, says, “Even the more conservative demand growth scenario offers strong support for commodity prices in the coming years.”
Gold has a special position, says Funda Sertkaya, commodity expert and chief executive of precious metals trader Ophirum: “Gold is in demand as a crisis currency and as a hedge against inflation, especially if the US Federal Reserve is currently raising interest rates less than expected or if inflation continues to rise. ” In addition to physical gold, investors can mainly invest in funds and certificates, some of which are physically deposited. Stocks are a classic tangible asset – shareholders participate when companies adjust their prices to reflect higher costs. Mine operators in particular often benefit disproportionately from higher commodity prices. But be warned: all stocks are subject to fluctuations and are affected by the recent sharp rise in risk aversion.
Hui real estate – cryptocurrencies ugh
Concrete gold prices have been climbing to new records for years. But now the mix of rising interest rates and a slowing economy and consumer sentiment could hold back the rise. After the rally in recent years, it would be more than normal and healthy for more. “Crypto currencies, on the other hand, have so far failed completely as a hedge against inflation; on the contrary, they are falling just as heavily as speculative tech stocks,” says Jürgen Molnar of broker RoboMarkets. While inflation has risen in recent months, Bitcoin and Ethereum are together on a rapid decline. Discussions about high energy consumption and regulatory interventions in the EU have also damaged Bitcoin & Co.’s reputation.
Investors therefore have material on hand to offset inflation. High dividend stocks offer a steady payout and there are now plenty of them in the DAX or EuroStoxx. But the derivatives market also has interesting structures ready. Many bonus certificates or coupons now offer potential returns of 10 percent or more, even if the underlying index, such as the DAX or Nasdaq, doesn’t even move. Investors call it a side return. It is especially high when fear reigns – and there is an abundance of it everywhere right now.
Daniel Saurenz manages the stock exchange portal Feingold Research.
This article does not constitute a recommendation to buy or sell individual shares or other financial products, no liability is assumed for the correctness of the data.