Don’t wait around; save your assets
Do you still believe that interest on savings will offset or exceed the depreciation of money caused by high inflation? You shouldn't do that. It would be an expensive mistake. Make a list of pros and cons. You will quickly realize that the interest rate on investments cannot and will not rise above the rate of inflation. The chance of maintaining your existing assets solely with monetary values is low. The risk of suffering real asset losses, however, is high.That much is certain.
So if you consider investing your assets exclusively in monetary assets such as bonds, savings accounts or time deposits, you will very likely receive less for your assets in the future. By investing in assets - gold, real estate, private equity and stocks etc. - you increase the likelihood of preserving your wealth.
However, real estate has been so popular in recent years that, even with a great deal of effort, it now only brings a small return because it is already so expensive. Rising interest rates -even lower than the rate of inflation- could spell trouble for real estate markets.
Rate hikes above the rate of inflation are very unlikely
If the European Central Bank (ECB) were to raise interest rates, the EU states would also have to pay more for their debts; and their financial obligations have reached astronomical proportions since the financial crisis and subsequent pandemic.
The current conflict on Ukrainian soil will also not lead to lower national debt due to higher military spending. Decarbonization also costs a lot of money until it pays off for everyone.
A significant rate hike seems good for you, the bond buyer, as a first step. In quick succession, however, heavily indebted companies and states would have to declare their bankruptcy and only repay part of their debts - keyword: haircut like in Greece. Accordingly, you would only get back part of your investment. And this would be worth even less due to the high devaluation of money - inflation.
A difficult situation. Talk to Schelhammer Capital Wealth Management, Wealth Advice and Wealth Management. Benefit from our knowledge.
Inflation has risen – short and long-term interest rates less
The former German Bundesbank board member Jens Weidmann had already expected 3% inflation in the second half of 2021. The comparatively high inflation rate forecast at the time was also greatly exceeded.
In April 2022 inflation was around 6% in Austria and Germany. Central banks around the world have signaled that they will – temporarily – allow higher inflation. With increased inflation and only slightly higher interest rates, government debt automatically decreases. However, your assets quickly become worthless if they are invested in monetary assets such as savings accounts, savings accounts, bonds, life insurance policies, etc.
In the euro zone, the inflation rate in August 2022 was 9.1 percent compared to the previous year. The sad leaders are the Baltic states of Estonia (25.2%), Latvia (21.4%) and Lithuania (21.1%). France has the lowest inflation rate in the euro zone at 6.6%.
Austria (9.2%) and Germany (8.8%) are just above or just below the average.
Short and long-term interest rates rose by around 2.5 percentage points. After inflation, there is an average real money destruction of about 6 percent in August.
So you have every reason to be concerned. Make an appointment with our financial professionals.