Strategy beats Inflation

Thu, August 19, 2021 10:01 PM

What you should do now to combat demonetization.

This Article in Brief

The aftermath of the Corona crisis threatens permanently low interest rates and increasing currency devaluation
With the right tactics, old-age provision and asset accumulation can still succeed
Get professional advice to find the right pension solutions for you, even in times of low interest rates and rising inflation.

Have you noticed? When shopping or filling up your tank, you now have to pay more than you did a year ago. One of the reasons for the price increases is the corona crisis. Here you can find out why the aftermath of the pandemic is also likely to prolong the low-interest phase and how retirement planning and asset accumulation can continue to succeed despite inflation and low interest rates.

For people, it means they have to do even more for their private retirement savings." - Prof. Bernd Raffelshüschen

More preparedness necessary

The downside of the Corona bailout: The government's mountain of debt is growing. In 2021 alone, the federal government will need new loans totaling 240 billion euros. The new national debt comes up against an already long-standing problem: demographic change. The consequence: both of these factors combined could sooner or later necessitate adjustments to the statutory pension, for example.

Professor Bernd Raffelhüschen of the Generational Contracts Research Center (Forschungszentrum Generationenverträge) at the Albert Ludwig University in Freiburg assumes that the gross pension level will fall from 48 percent now to below 40 percent by 2040. "For people, this means that they will have to do even more for their private old-age provision due to the indirect consequences of the corona crisis," Raffelhüschen said.

Extension for low interest rates

Central banks are using low interest rates to boost lending in order to support the economy during the recession. Governments also benefit because they can pay off accumulated debts more easily. So the low interest rate will go into overtime because of Corona.

Savers will lose out. They now need a strategy with which they can increase their money despite low or even negative interest rates.

The return of inflation

For a long time, inflation was not an issue, but now it is back "with a vengeance". There are several reasons for this, for example:

At the beginning of the year, the value-added tax was raised back to normal. This and the oil price recovery are driving inflation in 2021.
The CO2 tax introduced this year is making oil and gas more expensive.
In the long term, demographic change with a growing number of retirees could also fuel inflation. "As retirees continue to consume but no longer produce, shrinking supply meets stagnant or even rising demand: these are definitely the ingredients for rising inflationary pressures," explains Martin Moryson, Chief European Economist at DWS.

Strategy beats inflation and interest rate slump

Interest rate defaults and rising inflationary pressure are making life difficult for savers and investors. Wealth advisors help you counter these developments with the strategy that suits you best, so that you can make the smart financial planning choices and successfully defy low interest rates and inflation.

1. Build up something of your own

Owning your own real estate is a tangible asset that can often survive a drop in the value of money. The real estate boom has been going on for ten years in many parts of Germany. At the same time, however, interest rates have continued to fall, keeping real estate loans affordable for many eligible German residents and citizens.

Solutions for Savers

If you want to build or buy a property now, you can currently get financing at affordable rates.
Due to the current rapid increase in construction costs, make sure that you have a firm commitment on prices. Due to the shortage of building materials in some segments, you should also firmly agree on delivery dates so that there are no delays in the construction phase.
Tip: With our partner FingerHaus, for example, you receive a 24-month price guarantee and a fixed delivery date for your house.
If the purchase or construction of your own four walls is not planned for several years: With a building savings contract, property owners-to-be can secure the favourable interest rates for later financing at today's market rates.

2. Gold can safeguard purchasing power

Gold is considered a classic protection - not only in times of crisis. In the long term, the precious metal has never lost its purchasing power in the past, even when inflation rose sharply after an economic crisis. With gold, savers rely on the long-term price increase of the precious metal instead of interest. Historically, it has always been true that those who have held on to gold for a long time have been able to ignore fluctuations in its value.

Solutions for Savers

Apart from a one-time payment, gold can also be purchased with smaller regular amounts as a savings plan.
The precious metal can be integrated into private old-age provision - for example with an asset-oriented pension insurance.
With the gold savings plan (GEIGER GOLDSPARPLAN) from as little as 25 euros per month, you can acquire physical gold. Alternatively, gold bars can be purchased with a one-time payment.

3. Provide for the future and build up assets with a strategy

You can only maintain at least the purchasing power of the funds you have invested if the return on a savings or investment solution is higher than the rate of inflation. Solutions that rely solely on interest rates - which are currently low - do not succeed in compensating for inflation. But there are alternatives for financial planning and asset accumulation.

Solutions for Savers

Retirement planning: With the state-subsidised forms of Riester or Basic Pension, tax breaks and/or subsidies make for an attractive return.
Asset development: With investment funds, investors can take advantage of the return opportunities offered by the stock market and beat both inflation and low interest rates. It is true that stock market prices tend to fluctuate from time to time, so it is wise to spread your money widely, funds can minimise this price risk.
There are two options: investing a larger amount once or building up assets through a fund savings plan with continual smaller contributions.