We come from a few years in which inflation, the rise in the price of what we buy, has been stagnant, even negative. In fact, between 2013 and 2015 the overall is negative: 0.3%, -1% and 0%, respectively. For this reason, as soon as we achieved profitability in our savings, we were already earning something. We will see what happens when there is inflation, as has been happening since 2016.
Real return (net of inflation)
The profitability of any investment product depends on several factors, but the main one, undoubtedly, is the level of risk you are willing to assume.
However, the key to know the real profit of your investments in a year is not only to know the % by which your invested capital has revaluated. To that profitability we must deduct the inflation of that year, since that decreases our real profit.
Example: I have a deposit that is giving me 1.5% APR (this is already net of expenses). From this 1.5% we have to subtract inflation, since the standard of living is more expensive, it costs me more to buy basic necessities, rent, etc.
Assuming an inflation rate of 1%, the real yield is 0.5%, so it is less than we thought at first.
How to avoid the effect of inflation on our savings
It is clear that we will not be able to avoid it, but we will be able to cushion it. Our main advice is to diversify the investment, taking into account, of course:
- Your age
- Your need to dispose (liquidity) of your investments
- Your financial and family situation
- Your risk profile
It is advisable, depending on the latter, to diversify among different investment products: some guaranteed and others with some variable income to achieve a higher profitability, and so that the inflation effect does not “eat” all our profit.
Products to diversify and improve our performance
As we can see, there is a need to prevent inflation from absorbing our money. If the profitability of our products is below the CPI, we lose purchasing power.
Therefore, in order to diversify our investments and savings, we must choose among several available products:
- PIAS
- SIALP
- Savings plans linked to investment funds
- Pension plans
These are, among others, a wide variety of alternatives where to place our savings.
Our Savings and Investment Department advises on a daily basis on what types of products suit each client. We have to listen carefully to each person’s situation, in order to understand how their domestic economy works, and advise what is best for them. If you are asking yourself: “How to invest my money?” don’t hesitate and contact us.
