The deflation deflationary episode of 2020 has given way to the return of inflation in 2021. In 2022, certain investments, such as gold, rental real estate, or uncorrelated assets will protect you from rising prices. Investments in the stock or bond markets should be handled with caution. a nary episode of 2020 has given way to the return of inflation in 2021. In 2022, certain investments, such as gold, rental real estate, or uncorrelated assets will protect you from rising prices. Investments in the stock or bond markets should be handled with caution.
Protecting your savings from inflation
The Covid-19 crisis caused a period of deflation that disturbed investors accustomed to constantly rising prices. But with the post-Covid economic recovery and then the Russian-Ukrainian war, inflation made a comeback. By 2022, inflation has taken hold. You should combine the best investments available to ensure that your savings will not be “eaten away” year after year.
Gold, the anti-inflation queen
Buying gold paper or gold-physical ensures the security of part of one’s savings. After a spectacular rise to more than 2,000 dollars an ounce in July 2020, the yellow metal experienced a decline in November 2020. In 2021, analysts predicted that the upward trend would continue for the next few years. By the first quarter of 2022, its price was flirting with $1,900. And the quantities purchased had increased by 34%. In September 2022, the ounce of gold fell back to just under 1,700 dollars.
Reputed to be the best hedge against inflation, it moves in a counter-cyclical way. Its price rises when the stock markets fall. It is a particularly interesting investment to moderate the decline, when it occurs, of the yield of bonds by the decrease of their interest rates.
It thus evolves inversely to real interest rates (interest rates minus inflation): the higher the inflation, the lower the interest rates of central banks, and the higher the price of gold. Monetary policies seem to remain for a few more years in a “money printing” logic in the form of quantitative easing, which consists of buying assets from banks to encourage credit. A possible opportunistic rush into gold will only boost its value.
Upon resale, capital gains are taxed at 11% and 17.2% for social security contributions. An abatement of 5% of this tax per year from the third year of ownership allows for a total exemption after 22 years. As economic crises come back in a cyclical way, one can think that one or two stock market crashes can appear in these periods and, at the same time, deteriorate other investments sensitive to financial catastrophes. This deduction protects your
savings invested in gold.
Rental property, an investment indexed to inflation
Another way to protect your capital from inflationary movements is to invest in real estate. The rental solutions include rent agreements based on inflation, and in particular on the Index of Reference of Rents (IRL) for the Pinel or LMNP schemes. Therefore, in the event of a price increase, lessors can raise rent proportionally.
Real estate prices themselves may fall during the coming months of the crisis, offering unexpected buying opportunities. These corrections should only be temporary and the steady rise in prices should resume, thus enhancing the value of an investment made at the right time. The resumption of inflation, therefore, makes it an investment with very good returns for future years. Unless inflation becomes too strong and threatens the purchasing power of tenants and increases the risk of unpaid rent or rental vacancies.
The simplest solution is to buy shares in a Société Civile de Placement Immobilier (SCPI), by acquiring real estate assets linked to companies. Vigilance and caution are required, as the risk of default by companies are real during the crisis and the value of the shares may fall.
Invest in equities or accept more risk
Generating returns in connection with greater risk-taking makes the equity market a privileged field. However, this is for seasoned investors who are able to read the potential of companies at their true value, so as not to lose their investment in a few hours. The safest way is to use equity funds that will ensure a good level of dividends and yield when buying/selling stocks.
Bonds are to be avoided. For example, French government bonds (OATs) are the safest way to secure your savings, as the risk of a government defaulting is virtually nil. The French government is well known in this field, but as its interest rates are fixed, the investment will deteriorate from year to year.
Inflation-Linked Bonds (ILBs) work differently from OATs. In the event of inflation, the original value (at the time the coupon was purchased) is retained and depends only on real rates.
Wine and art objects, to be reserved for connoisseurs
Some investments for pleasure can become a bulwark against inflation. Good bottles of wine or valuable works of art will see their price explode over the years. But you must have the necessary flair when selecting them.
Forests, investments that do not know the crisis
Other assets more linked to the real economy are said to be “decor-related”. They are not affected by economic upheavals. Promising sectors such as wood, for example, deserve to be considered. The solution lies in buying shares of Groupements Forestiers d’Investissement (GFI).
The investment generally starts at 5,000 euros in the case of a share purchase, and at 150,000 euros in the case of the creation of a GFI. An income tax reduction of 18%, coupled with average annual yield targets of around 2%, brings a little nature to your capital while protecting you from inflation.