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Dusseldorf. Inflation is evident in portfolios, including savers. NRW Consumer Advisory Center explains what rising interest rates mean for investments.
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The positive news: with the latest rate hike by the European Central Bank, savings are once again more attractive. However, term or overnight deposit accounts or savings bonds are not yet able to compensate for the high inflation. “Real assets are often said to offer better protection against high inflation,” explains Ralf Scherfling, a financial expert at the NRW Consumer Advisory Center. “But you have to be careful here too. Property prices are falling in some cases, investing in the stock market is only advisable with a long-term horizon and loans are becoming more expensive”.
Three principles are important: diversify your investments, don’t take unnecessary risks and keep costs down. The NRW Consumer Center provides the following tips:
Small advance for savings
There is now more interest on cash deposits in overnight and time deposit accounts. But: At best, a good two percent is possible with long maturities, short and medium term is less. This means that savers cannot compensate for high inflation: the money invested only increases on paper, but is worth less afterwards. For example, $ 10,000 in an account with 1% interest would nominally equate to $ 10,100 after one year.
With an inflation rate of eight percent, however, it would take € 10,800 to maintain the purchasing power of money. In other words: the 10,100 euros are actually worth only 9,352 euros in real terms. That’s why you should now review your investment strategy, compare offers, and possibly wait with long-term investment decisions if you hope for further interest rate hikes.
Take advantage of the long-term stagnation of stocks
Since the beginning of the year, the upward trend of the stock markets has ended. Prices have dropped significantly, for example the Dax from over 16,000 to under 13,000 points and the MSCI World from over 3,200 to nearly 2,700 points. After all, investors can take advantage of the stock market crisis and buy cheaper fund shares, provided they can do without the money for a longer period of time and wait for the price to recover later.
Because you have to be able to withstand bad times if necessary for several years. In addition to dividends, there is a payback especially if you review stocks or ETFs in better times. In the long term, this type of investment is important for strategic asset accumulation.
Real Estate: Loans are becoming more expensive
The ECB’s decision not only increases interest on savings, but also interest on loans. This means that home loans and consumer loans are becoming more expensive, as is the interest you pay for an overdraft (overdraft bill). More equity is now advisable for a property purchase and the repayment rates (interest and principal) will increase.
This means that interested parties now have to calculate even more precisely whether they can afford the purchase. Monthly interest and repayment charges should not exceed 30-35% of net disposable income.
From gold to bitcoin: beware of speculative investments
Although it has a good reputation: physical gold in the form of bars or coins is not a safe investment. The value fluctuates considerably and earns no interest. Therefore, gold should not represent more than five percent to a maximum of ten percent of the assets. What matters here is the hope of a rise in the price of gold.
Bitcoins are by no means suitable for the accumulation of strategic assets because they are purely speculative. Anyone who still wants to invest here should only do so with the money they have left – and be careful, as there are numerous dubious providers in the cryptocurrency market.
All about investing on our topic page: www.verbraucherzentrale.nrw.
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