The faltering economy also threatens your money. But you can protect your wealth from inflation and a comeback in interest rates – if you ward off the dangers with new investment strategies.
The good news: although many economic researchers had expected a severe slump, the German economy is growing. Things are also looking better for savers in 2023: they will receive interest on their money again, and fund and share prices will rise cautiously. The not-so-good news: Investors need to do something – they need to prepare their finances for 2023 and the years to come. The challenges to savings and wealth creation are daunting. Even if prices no longer rise abruptly and the state helps billions: hard factors determine how money, goods and the big picture will continue.
The environmentally friendly restructuring of the German economy is risky and expensive. Nobody knows whether the transformation to more climate-friendly production will succeed. If not, we’ve been one of the strongest economies in the world for the longest time.
It’s going to be bumpy this year anyway. Even optimistic forecasts assume a stagnating economy. On average, Germans cannot expect their prosperity to increase.
The national debt, on the other hand, will grow. The government supports people with a total of more than 200 billion euros: for price brakes on gas and electricity, more child benefits and higher tax allowances. However, this flood of money also means high new debts – and thus an extreme burden for future generations.
And the inflation? She stays. And she stays high. Bundesbank President Joachim Nagel expects a price increase of around seven percent this year. In 2022 it was still almost eight percent on average. “From 2024 onwards, inflation rates will then drop significantly.” But “it will still be some time before inflation gets back to where it belongs, namely at two percent.”
This is fatal for real wages. Inflation depresses disposable income. Salaries are likely to rise sharply in nominal terms. But less fast than the prices. Torsten Schmidt from the RWI – Leibniz Institute for Economic Research: “2023 will be another bad financial year for most.” Real wages are expected to shrink by 1.7 percent, last year it was even 3.7 percent. Only in 2024 should things start to pick up again.
Even if this year develops better than expected: savers must also do something themselves. By adapting their investment strategies and return targets to the extremely changed framework conditions.
Financial experts agree: the biggest money threat continues to be stubborn inflation. Because it not only reduces future returns, but also eats up large parts of what has already been saved. Even with a low price increase of just one percent, the money invested is worth almost 26 percent less after 30 years. With two percent inflation, it’s almost 45 percent. Not to mention what the seven percent forecast for 2023 would do after 30 years: Purchasing power would shrink by almost 87 percent.
Inflation is here to stay. Also because it is good for the state and its high debt: it depresses the real value of the budget deficit. This increases the temptation to take on new debts for new needs – real and alleged.
Investors should therefore continue to reckon with about three to four percent inflation in the future. However, even this moderate price increase already has dramatic consequences for one’s own profit expectations: the long-term realistic six percent return per year effectively shrinks to only two to three percent.
Asset manager Kurt von Storch says: “In the coming years, the stock market will be less about getting rich and more about protecting the assets you have already built up and want to build up from inflation, i.e. purchasing power to obtain. It won’t work without material assets, it won’t work without shares in good companies.”
The following applies to personal return targets: modesty instead of competition. The times when the world stock index “MSCI World”, which is so popular with investors, grew by an average of more than twelve percent over a period of ten years are over for the time being. Single-digit annual returns are much more likely — minus inflation.
In addition, savers should be prepared for the fact that the prices of their shares and interest-bearing securities can fall sharply, especially in these times of crisis – and they should also be able to nervously endure such setbacks. “It is important for investors to ask themselves a question: At what loss do I start to sleep badly?” knows asset manager Bernd Heimburger. “The answer is crucial for the combination of asset classes.” So: How many promising but volatile stocks may be in the portfolio and how many stabilizing bonds or call money should there be? Only those who answer this question honestly will feel comfortable with their personal financial strategy in the long term.
However, this caution should never lead to overestimating the risk of a stock market crash. Because there has never been a crisis from which the stock markets have not recovered. On the contrary: In the long term, prices always rise. At least that’s how it has been for the past 150 years.
The best remedy against any risk of a crash is to invest step by step with a regular savings plan and stick to the monthly installments – especially in difficult times. Philipp Vorndran, capital market strategist at Flossbach von Storch asset management says: “Ultimately, it is precisely these phases that we will probably say about in ten years’ time: Back then it wasn’t the worst time to buy shares.