The current economic environment faced by investors and consumers is extremely unfavorable and now affects them in every way.
Investors, savers and consumers are now called upon to find solutions so that the high inflation would not lead them to economic losses over time.
The high cost of fuel and not only that, has been transferred to a series of increases with the most important one being the rise in the electricity prices and respectively boost the prices of all products.
Therefore, the consumer experiences a large increase in his monthly budget, without a corresponding increase in income. Thus, he is called upon to find a way to balance these large increases, by utilizing his savings to "work" effectively.
With time deposits being the favorite investment style of most people, there is a clear need to look for new alternatives. This is where the concept of investing comes in. How and why, it should be part of everyone's planning.
The security of money is not incompatible with the concept of proper investment in diversified investments. The very concept of money security is now incompatible with bank deposits as inflation creates "losses" in the depositor's money and even greater than the actual level of inflation.
Bank deposits are not and will not be an option, as inflation has reached so high levels that key central bank interest rates will not be able to help de-escalate it, as they will remain at significantly low levels, even with successive increases. Otherwise, they will create a recession and this will add an extra “headache” to savers/investors.
High inflation brings to the surface the right choice of investments and even before someone chooses which is the appropriate investment, he must be assured of the total cost of the investment he will make. It should be ensured that the cost does not exceed 1.0% per year.
If the high hidden charges of the investment products offered today are analyzed, the cost can reach 5% and if inflation is added to that, the investor-saver is 10% lower with the start of the investment. And these losses cannot be covered if we want to be honest.
Bonds: Yes or No?
Government bonds do not offer any flexibility and the risk increases significantly as, already, a sell-off in government bonds is happening worldwide under the fear of inflation and a probable recession that the rise in interest rates will bring.
Corporate bonds suggest a better option, but they are not enough on their own as a solution to deal with the phenomenon, nor are they enough to successfully spread the risk.
In fact, in a high inflation context, stocks and alternative investments are the best options, since they manage to achieve satisfactory returns. Of course, this does not mean that we place our money in the stock market directly, as one might assume. Any choice should not be based on the selection of individual securities, either stocks or bonds.
ETFs and appropriate selection of industries
The most successful option that investors and savers should look for is an investment portfolio consisting of a composition of low-cost investments, such as ETFs.
A proper selection of sectors that are better performing in times of inflation is necessary, and it should be properly distributed along with alternative investments, so that there is an extensive dispersion, a significant reduction in risk and an increase of future returns.
If we think simply, we will understand this: With inflation at almost 6%, the immediate risk taken by a saver's funds is 6% and the future return is negative.
Considering that one already has funds in a state of risk and loss, one should look for a reliable solution to significantly increase their future return. And fortunately, these solutions exist and should be utilized.
Source: Republication from www.powergame.gr (https://www.powergame.gr/scripta-manent/204864/enallaktikes-ependyseis-se-synthikes-ypsilou-plithorismou/)
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