After almost three years of continuous crisis due to the corona pandemic and the Ukraine war, some certainties for investors have dissolved.

New landmarks have taken their place, or old virtues have become topical again.

The turn of the year is a suitable time to take a mental inventory: What goes, what comes, what stays?

Mark Fehr

Editor in Business.

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The long phase of low interest rates in the euro zone following the financial crisis of 2008 came to an end this year.

In July, the European Central Bank raised the key interest rate for the first time in more than ten years, followed by three further increases and also abolished the negative interest rate.

This is being hailed as a historic turnaround in interest rates.

Because investors are now once again receiving positive interest on their bank deposits, share prices and real estate prices have come under pressure.

If interest can be earned again with risk-free investments, securities, precious metals or houses lose their attractiveness.

But is that really the case now?

The pressure to invest in the stock market or the real estate market seems to be decreasing because of the turnaround in interest rates.

In fact, however, investment pressure not only remains high, it is even increasing.

Not only are interest rates rising, inflation has also increased enormously.

The decisive yardstick for investors is not the nominal interest rate, but the real interest rate.

The latter takes into account the loss of purchasing power due to rising consumer prices.

In simplified terms, it is obtained by subtracting the inflation rate from the interest rate agreed with the bank on deposits such as call money or time deposits.

Anyone who invests around 10,000 euros at a nominal interest rate of 2 percent has gained nothing after deducting an inflation rate of 2 percent.

In the case of low interest rates and price changes, the real interest rate can be approximately determined as the difference between inflation and the nominal interest rate.

In the case of higher rates, the calculation is more complicated.

Inflation eats away at savings

If you want to know exactly, you can look at the real interest rate statistics of the Deutsche Bundesbank.

A look at the table shows that the real interest rate on one-year bank deposits from private customers was mostly well below zero during the low interest rate phase from 2011 to 2021 (see chart).

During the low-interest era, the real interest rate only made it into positive territory twice, i.e. where savers actually want it to be.

With the surge in inflation since the end of the corona pandemic in Europe and the attack on Ukraine, the real interest rate has suddenly plunged deep into negative territory.

It has now become even harder than before for investors to preserve their financial wealth due to the sharp rise in consumer prices.

That was already a challenge during the low-interest phase.

But even after the turnaround in interest rates, wealth preservation remains a goal that is difficult to achieve.

It's just that it's no longer negative interest that's eating away at savings, it's inflation.

Investors were at least able to avoid negative interest to some extent by hoarding cash.

But not only bank money falls victim to inflation, but also cash.

Banknotes in the vault offer no protection against falling purchasing power.

Whether inflation will continue to bite so painfully in the coming year depends heavily on energy prices, which since the Ukraine war have not only become a topic of conversation at the table, but also a key indicator for the stock market.

In normal times, high prices for energy commodities such as oil or natural gas are a sign of a revitalizing economy.

Currently, they are primarily a crisis indicator.

Even when looking at individual stocks, the political turnaround is likely to lead to a change.

What was once considered desirable can now become a blemish in the eyes of investors - and vice versa.