Which investments protect against inflation?
For many years, which were happy in hindsight, the Germans asked themselves this question more in theory than in practice.
Because the inflation rates in this country were surprisingly low in the first twenty years of the new millennium, only very rarely once did inflation exceed the value of two percent.
Nevertheless, not a few Germans suspected that the outbreak of the next big inflation must actually be imminent.
This feeling was particularly widespread during the years of the euro sovereign debt crisis.
Editor in the “Value” section of the Frankfurter Allgemeine Sunday newspaper.
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However, the situation never became really threatening – until supply bottlenecks, the Russian attack on Ukraine and the long wait and see attitude of the central banks caused inflation in Germany to rise to a current level of ten percent.
Now the old question suddenly arises with unprecedented urgency: Which investments protect against inflation?
It must be said in advance: even if some types of investments can be helpful in the fight against inflation, one goal is unfortunately unrealistic: to permanently compensate for an inflation rate of ten percent with equally high returns.
"If inflation persists at this level for years to come, investors would have a problem," says Jan Viebig, chief investor at Oddo BHF Bank.
However, no reputable economist expects that.
But at least for the coming year, the German economic research institutes are not giving the all-clear in their joint forecast.
They expect an annual average of 8.8 percent inflation in 2023, and a rate of 2 percent will only gradually be reached again in 2024.
At least in the short term, it is likely to remain difficult
to achieve full inflation compensation by investing in whatever form.
In these times, investors have to accept that this will probably only succeed a little.
bonds under scrutiny
So what helps?
Unfortunately, only a few bonds.
After all, they only offer investors the repayment of a fixed amount combined with a fixed interest rate when buying the bond.
Interest rates have recently risen again somewhat as a result of the key interest rate hikes by the central banks.
But returns of ten percent are rare and not to be found in reputable states and companies.
A federal bond with a term of ten years currently only promises a return of 2.25 percent.
However, there is a form of bond that already has inflation protection in its name, the so-called inflation-linked bonds, or "linkers" for short.
Such bonds, issued by countries such as the US, Germany, Italy and France, combine a fixed interest rate coupon with a compensation payment for rising inflation.
The interest rate on an inflation-indexed federal bond, for example, is always below the interest rate on a normal federal bond with the same term.
Buying a linker is therefore only worthwhile when the combination of inflation adjustment and coupon results in a higher return than buying a bond without protection.