Record inflation will burn Slovaks’ life savings. Losses can be billions – Pravda.sk

As a result of inflation and a sharp rise in prices, Slovaks are receiving a lot of savings. Last year, households lost 1.3 billion euros on their savings deposited in banks in current and savings accounts or term deposits. This year, the loss can exceed up to two billion euros. Maroš Ovčarik, an investment expert from Partners investments, advises on how to mitigate the effects of rising inflation on life savings. The year-on-year inflation rate for February also rose to 9 percent due to the war in Ukraine. The team exceeded the January record of 8.4 percent. This is very bad news for life savings, but also for Slovaks’ wallets, as it indicates that they are becoming increasingly poorer. They feel a sharp rise in prices on their wallets, even with normal consumption, immediately. Due to rising inflation, money is losing its purchasing power. What exactly does that mean? If yesterday they bought groceries for 20 euros, while the shopping cart consisted of ten groceries, a two-month similar purchase could cost 25 and maybe even 30 euros. Alternatively, they will buy only seven or eight of the same foods for the same 20 euros. Read more Inflation, deflation, stagflation. What is the difference between growth, price increases and when do problems arise? However, rising inflation has a much greater impact on citizens’ future in the long run. The critical moment is the loss of the value of life savings. For them, inflation is the biggest enemy. According to available data Partners, more than 63 percent of financial assets held in banks are in conservative products, where the interest rate is close to or equal to zero. “The people of Slovakia hold approximately EUR 44 billion in term deposits, current and savings accounts, and after taking into account last year’s average inflation rate of 3.2 percent, their savings have depreciated by EUR 1.3 billion. If they put part of these savings into reasonable investment instruments, they would significantly reduce the effects of inflation on the value of money and not only protect their savings, but also value them in the long run, ”explains Maroš Ovčarik. Although the record inflation, according to Ovčarik, brings more problems in family budgets, it can be attributed to one small plus – it stimulates people to deal with the topic of investing. According to the expert, Slovaks have had a very lukewarm relationship so far, which is finally confirmed by comparisons with other countries. According to Partners in the rankings, Slovakia is one of the top three most conservative countries in terms of asset appreciation. Significant differences can be seen when comparing with the neighboring Czech Republic. “While in Slovakia the average amount of money of financial assets per capita is 7,500 euros, in the Czech Republic it is over 20,000 euros and in other countries it is tens to hundreds of thousands of euros. This is due, on the one hand, to the lower rate of savings that our households save, which, of course, is also related to the economic situation, but also to the poor structure of the distribution of assets. In the long run, this will mean more and more differences compared to other countries, “he adds. How money loses value as a result of inflation: Partners gives a model example: You hold 5,000 euros in a savings account for 5 years at an average inflation rate of 5.0 percent. The value of your savings will be due to inflation: € 3,868.90 Loss: € 1,131.10 If you invest money, you can achieve the following forms of appreciation: In a dynamic investment: € 7,012.76 In a mixed investment: € 6,381.41 In conservative investment: € 5,796.37 If the money was in a term account: € 5,025.05 Read more Economist on the fight against expensive fuels: Ceilinging will damage the price function, targeted help How do you protect free money in your savings account from inflation? Don’t rely on the situation to resolve itself. Take an interest in your money and solve the situation now. It is almost certain that interest rates in banks in conservative products will not be able to compete with inflation. If you have most of the savings in the bank on a regular, savings or term deposit, move at least part of them to more profitable products. Get an analysis of income, expenses, assets and liabilities that will give you a comprehensive picture of your current finances. Think about how long you plan to invest. When investing for 7-10 years, mixed funds with a higher, at least fifty percent share share are more suitable. Real estate funds are also suitable as a reasonable part of a well-distributed portfolio at this horizon. The selection of funds must take into account that they are global. That is, all important regions such as the USA, Europe, emerging markets and Japan are represented in them. On the one hand, global portfolios can dampen downturns and on the other hand benefit from market opportunities. If you are just starting to invest, consult a financial expert. The choice of suitable investment products depends on many parameters and goals that you plan to achieve. The financial intermediary will help you correctly divide the savings into the necessary categories and determine the optimal investment horizon for the savings, ie the period for which they can be saved. It will also offer you suitable investment products. Don’t be afraid to invest. Give him money, but also time.