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Parking a lot of money in a savings account is a bad idea even without a negative interest rate: Inflation will erode away its value. Solve this problem by investing your money.
Inflation is a much discussed topic. But what is it exactly and how does it affect you? This article shows how you can protect your savings against gradual depreciation.
During a phase of inflation, prices for goods and services increase. In other words, money loses its value. In Switzerland, the rate of inflation is measured regularly. Even though historically it has not developed along an even path, the fact is, prices increase steadily.
Price for 500 grams of wholegrain bread (Source: Statistical Office of the City of Bern, in German):
You can find more detailed information on the rate of inflation from the Federal Statistical Office.
The depreciation of the value of money affects all consumers. However, the effect is especially felt in your savings account: Inflation can significantly deplete your assets. A certain amount lying untouched in your account for years has diminished purchase power over time. That’s why it’s not worth letting your money simply sit in a bank account, and especially not if there is a low rate of interest.
High inflation motivates people to spend their money over the short term and to convert it into goods: material things that will presumably hold value over the long term. This could be property, some gold, or valuable artwork, but also renovations, a new roof, or a car.
Maybe you don’t need anything personally, but you want to convert the money in your account into something “tangible”? If this applies to you, invest in tangible assets. Tangible assets are material goods that have a physical value. The most important tangible assets are equities, real estate, and precious metals. Equities are considered tangible assets because there is a real company behind them – with its production halls, machines, and land, etc.
By investing your capital, you let your money work for you and retain its value. Investments are thus an important way to protect against inflation. If you generate returns that correspond on average to the rate of inflation, then the value of your assets remains unchanged. As soon as your returns exceed inflation over the long term, you can even grow capital.
Equity markets trade in shares of companies (stocks). By buying stock, you invest in a certain company. As compensation for the capital you make available to the company, it lets you share in its profits. You receive regular dividends. If the company is doing well, then its share price increases. Then you can either keep the stock – since you expect additional gains – or you can sell it at a profit.
Bond: A security through which investors provide money to a company or state. The amount, term, and yield are all defined in a contract.
Fund: A “pool” in which investors collect capital. The fund assets are broadly invested by the fund manager, which allows for a desired risk distribution.
Portfolio: Collection – here the sum of many investments and types of investments (funds, equities, bonds, etc.).
Price fluctuations on the financial markets can lead to losses, especially with equities and bonds. How big the risk is depends on
Yes, even without expertise you can invest professionally and profitably. The easiest way to do this is through an asset manager. Insurance companies have many years of experience in this area. Your pension advisor can show you the risks, opportunities, and costs, and assist you on your way to your own personal investment strategy. The most important question here will be: What is your risk profile and what are your return expectations? Both are closely related. Incidentally, investing money with a view to your retirement provision is the one of the best decisions you can make. Investment products and pillar 3 can be optimally combined.
1. Investing is only worthwhile if you have a lot of money.
False. A small monthly amount is enough to become an investor. Regardless of whether it is a little or a lot – what’s important is that your money works for you!
2. I can invest later ...
This is true, but then it’s only half as exciting. Time is your best friend when it comes to investing. The more time you have, the greater the return.
3. To be successful at investing, you practically need a PhD!
Not quite. Just ask the right people. Then have the professionals ask you the right questions. And then your close to your own personal investment strategy.
4. I can’t touch my money once it’s invested.
Yes you can. EasyInvest can be tailored flexibly to your individual requirements.. There is no redemption period, and you can have your money paid out at any time.
5. I’m a risk-off type, so investing is not for me.
A certain amount of risk is unavoidable, even (and especially) if your money is in a bank account! Choose reasonable protection against inflation by investing prudently and conservatively. This will definitely be a better option than a savings account over the long term.
Anina Sabourdy is an Online Editor at AXA. She researches and writes on various insurance topics and loves the versatility of her job.
