Purchasing power is melting even faster than you think
8 percent inflation – what it really means to your wealth
Sunday 28 August 2022 | 20:10
The recent rise in inflation is a risk to our assets that many savers continue to underestimate. We calculate how inflation is draining your savings and what you can do about it.
7.9 percent – that’s how high inflation was in June 2022 compared to the same month last year. According to the economists at Commerzbank, inflation may rise to 8.5 percent this year. We all notice what it means: when you shop, when you top up, on the electricity and gas bill.
The price increases on food are particularly present. Because we usually shop several times a week and have the prices of the common products in mind, we immediately notice that butter now costs 3.29 euros or a pound of tomatoes is sometimes more than five euros.
How do you react to this? Do you switch to no-name products and discount stores’ own brands or do you even do without individual products – such as meat? It eases the household budget a bit, but what about petrol, electricity, gas or heating oil? There are usually almost no alternatives there. Where do you get the money for that?
That’s how dramatically inflation eats through your wealth
Are you already drawing on your savings to fill the gaps? So we come to the topic:
What does inflation mean for your assets, for your pension benefits, for measures that you may have already taken? What expenses should you expect in 10, 20 or 30 years to maintain your standard of living? Even if inflation were to fall back to four percent during 2023, as Commerzbank predicts? Without supplies from Russia, gas and oil will remain expensive in the long term, that much is certain.
Here are a few calculation examples – and our solution for you
1. Preserve purchasing power
Let’s say your monthly shopping basket for groceries, restaurant and cinema visits and other leisure activities is 500 euros. Let’s also assume that the 9 euro ticket is not renewed and that you spend 250 euro per month on mobility: for commuting to work by train or car or for weekend trips.
That’s a total of 750 euros.
With an inflation rate of eight percent, next year you would have to spend around 809 euros to be able to pay for the same shopping basket. If inflation remains this high, it will be around 1604 euros after ten years. We talk monthly. In other words: a budget of 750 euros will be worth only 690 euros next year and in ten years – in this inflationary scenario – only 329 euros.
Assume inflation falls to 4 percent in year 3 and stays there. Then you still need 1151 euros in the 10th year to pay for the same shopping basket, the purchasing power of your 750 euros today drops to 459 euros.
Where will the money come from to close this gap? We can only hope that your salary will keep up with these jumps. But what if not?
Let’s look at what this risk of inflation means to your assets, your savings. What happens if you can buy less in old age with the money in your savings account or from your life, pension or Riester insurance? There, too, the consequences of inflation are dramatic.
2. Defend savings
If you have saved well and in ten years have a balance of 100,000 euros, inflation will also melt this value. With eight percent inflation, the 100,000 euros in ten years corresponds to a purchasing power of just under 44,000 euros. In other words, you would have to have saved 213,900 euros to be able to buy today’s equivalent of 100,000 euros. So you need 114,000 euros – the equivalent of a well-equipped Mercedes S-Class or two Tesla Model 3s.
Should inflation be halved to four percent from the third year, that will help you a little. Nevertheless, their purchasing power is reduced to 61,200 euros. You should therefore have actually saved 159,300 euros to be able to compensate for the inflation effect. If the 100,000 will only be available in 20 or even 30 years, the calculation becomes even more dramatic. Then the credit’s purchasing power shrinks in the first case to a paltry 8,468 euros in year 30, in the second case there is still 27,000 euros left over.
So it’s clear: If you only save money in the time deposit account, your retirement savings will not be enough to maintain your standard of living. They must use forms of investment that clearly exceed long-term inflation – be it two, four or six percent. This is only possible with an investment in the stock market. Only then can long-term returns of six to seven percent be achieved, which can compensate for the gaps described.
A digital wealth manager saves your money against inflation
Not familiar with stocks? That’s how it is for many. And that’s not a problem at all, because there is a simple and reputable solution to that: Let a digital asset manager work for you. For example, our partner investigates. This is a viable but cost-effective alternative to a bank asset manager. After that investify is a so-called robo-advisor that only invests your money in low-cost index funds, so-called ETFs. These are funds that track an index, so they don’t need a fund manager – and they don’t charge their fees.
How to secure a welcome bonus of 70 euros at investify (advertisement)
- New customers receive a welcome bonus of EUR 70 (valid until September 4, 2022, Coupon code “welcome22”)
- No minimum deposit
- Monthly savings rate of at least 50 euros required
- The savings plan must remain in place for 12 months
- Depot with unlimited choice of items
- Uncomplicated administration: investify takes over the selection of investments and redistribution of assets
- Individual investment strategy and appropriate risk-return ratio
- investify is long-term winner of real-money test by Brokervergleich.de (06/2022)
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- Low custody fees: from 0.8 percent per year
investify asks about your individual investment goals in a questionnaire and also analyzes what risk you are willing to take. The algorithm then puts together a portfolio for you from the best ETFs in the world. In terms of performance, these ETFs then track the markets they represent. Studies show that such funds perform as well or better than a real fund manager over long periods of time. For the expert may beat his benchmark in one year, but he may lag behind the next. Better to minimize costs, just swim with the market and rely on global economic growth, which has always continued – even after a crisis like the current one.
If you want you can In your investify portfolio, you can also focus on a megatrend that you believe has particularly good potential. You can also book investment themes from a total of 24 theme investments. Each subject can have a maximum of ten percent of your portfolio so that it remains balanced and there is not too much risk if one of your main subjects does not succeed. Because risk diversification is the right thing to do in long-term investments – try it now. You will receive a bonus of 70 euros if you enter the voucher code “welcome22” at the end of the registration process.
investify is the winner in the long-term test for real money
The test of real money on the Brokervergleich.de portal, for example, proves that this strategy works. There, investify takes first place in the 5-year rating over the period from 1 May 2017 to 30 April 2022 with a rolling performance of 18.2 percent. No other robo-advisor was able to do that during this period.
In addition, investify was awarded the grade Very good in the Bankingcheck test. The robo-advisor got 4.8 out of 5 possible points among 214 fintechs in the comparison.
Right now, when prices are falling, is a good time to start saving in the stock market. Although many of us currently have the feeling that we cannot spare a euro for such a savings plan: if you want to be sure that you can maintain your standard of living in the future, you should take precautions and defy inflation in the way described. When you look at your balance sheet in a few years, you’ll be glad you started on time.
invest: To the ETF depository in a few steps
1. Click below on one of the orange buttons
2. Click on the investigate action page “Become a customer”
3. Follow step and open your account
4. At the end of the registration route, enter Coupon code “welcome22” a
From now on, you can sit back and relax. You no longer have to worry about anything, you save time and your wealth increases completely by itself.