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What to do in the face of record inflation?
This is THE question millions of Europeans are asking themselves.
The figures came out on Monday. In October, inflation in the eurozone (19 countries) reached an annual rate of 10.7%, a record since the creation of the single currency over twenty years ago.
To understand what 10% inflation represents, take a 10-euro note.
Today, that note will buy you 10 euros worth of pastries or bus tickets (electric, of course). Except that with 10% inflation a year, your ticket will only be worth the equivalent of 9 euros in 2023. And we're only talking about 10 euros here. For 10,000 euros or 100,000 euros, the loss is much greater 😅.
In this context, many of you are wondering how to avoid, or at least limit as much as possible, the impact of inflation.
Important note: there is no miracle solution. NONE.
There are, however, investments and strategies that can potentially limit the impact of 10% inflation, while we wait for Christine Lagarde and the European Central Bank (ECB) to cool things down by continuing to raise interest rates.
We've prepared a little compilation for you, with no sponsorship or anything (as usual 😎 ).
🏘️ Property: This is the first thing you think of, and the one that your "well-informed" uncle or cousin will obviously recommend. Property has one big advantage (at least in Europe): its price tends to rise when the crisis is over, which can partly offset inflation.
In France, property prices (for existing properties) have risen by 6.8% over the last twelve months, according to INSEE.
The problem is that in times of economic uncertainty, or even crisis 📉 , property prices tend to fall. If we add to this the increase in the cost of loans (in France alone, they have risen from an average of 1% to 2% in less than a year for a 20-year loan), which also has a downward effect on prices, property prices could fall or at least rise less quickly than expected... "We are already seeing this phenomenon in several European countries such as the UK," confirms Philippe Crevel, director of the Cercle de l'Epargne.
🥇 Metals:Gold is undoubtedly THE safe haven par excellence. Especially during crises (the subprime crisis, for example) and when there is inflation.
Historically, the yellow metal gains in value when currencies lose value because it is in limited supply (at least in theory, as it continues to be found every day) and accepted just about everywhere on the planet. Beware, however: gold has lost 18% since the start of the year, proof that even the "barbaric relic" is not immune.
🧾 Passbook savings accounts:It's always better than nothing (i.e. under your mattress), as the Livret A in France pays deposits just 2%.
🏦 Equities:I'm in, I'm out". Since the Covid crisis, equity markets, like cryptos (we talk about them below), have been on a bit of a rollercoaster ride.
In 2021, buoyed by the economic rebound, the world's main stock markets rose sharply. The Paris Bourse gained 29%, London's nearly 15%...
On the other hand, things are much more complicated in 2022 🙃. The markets have indeed fallen sharply, but this is not the case for all sectors. While 'technology' stocks such as Meta and Google have taken a beating, others in infrastructure and energy are on a roll. But for how much longer?
₿ Crypto-assets: While cryptos have risen sharply in recent years, none has established itself as a bulwark against inflation. At least in the short term.
Bitcoin, which is limited quantity (we explain it all here), is perhaps the best example of this. While inflation is at an all-time high, the biggest crypto on the planet has not followed the same trajectory. In 2022, it lost 70% of its value 🙃.
Does this mean we should forfeit? Not really. As with other assets, you need to be vigilant and understand how it works. "You need to have cryptos to diversify your portfolio," stresses Nicolas Chéron, a stock market and financial analyst.
Aside from buying bitcoin and other cryptos, it is possible to invest stablecoins - cryptos indexed to the value of traditional currencies such as the dollar or the euro - with specialist companies. In France, there are companies like Coinhouse or Feel Mining (registered with the Autorité des marchés financiers) that do this and returns can be as high as 6% annually - not guaranteed. The American exchange platform FTX offers 8% via its mobile app (offer limited to $10,000 deposits).
The more sophisticated, meanwhile, can use more sophisticated services such as Capsa Finance, a kind of new-generation hedge fund (awaiting registration with the AMF in France), whose CAPSA token reflects the fund's performance. It has returned 11% over the past 12 months. Not bad at a time when good investments are in short supply...
Beware, however: all these solutions can lead to a loss of capital. Every investment involves risk, and the greater the risk, the higher the returns.
Before investing in any product, investors should fully understand the risks involved and consult their own legal, tax, financial and accounting advisors.
