Inflation protection 2023 – Inflation-proof investments

Definition

What is inflation and why should I even care?

Inflation is the general increase in the prices of goods and services in an economy over a certain period of time. The most commonly used way to measure it is the consumer price index (CPI). If this index rises, each monetary unit can buy fewer goods or services. Consequently, with inflation, the purchasing power of money decreases.

This impacts everyone, but savers who leave their money in the bank are affected the most. Use our inflation calculator to see how much you stand to lose through inflation over time. You can find out how to protect your assets below.

Causes of inflation

How does inflation arise?

Exponential growth of the global money supply:

New record for the largest three central bank balance sheets

If the money supply and the real economy grow at the same pace, the currency can retain its purchasing power. However, if the money supply grows at a faster rate, it sooner or later causes inflation to rise.

Since the beginning of 2020, central banks around the world have massively expanded the money supply in response to the covid crisis. At the end of 2020, for example, there were about 25% more U.S. dollars in the financial system than at the beginning of the year. The more units of a state currency there are, the less each unit is worth. A clear corrosion of purchasing power is taking place. At the same time, supply shortages arose worldwide due to the pandemic, causing many goods to become more scarce and therefore more expensive. Higher production costs contributed to an economic growth slowdown. This all created the perfect environment for a rapid rise in inflation in the US and Europe in 2021.

CONSUMER PRICES

How do we measure inflation?

The usual measure is the annual percentage change in the national consumer price index (CPI) of each country. The CPI tracks the price development of a basket of goods and services, which includes the most important consumer staples, rent, gasoline and other items seen as necessities for private households.

The weighting of this basket is updated annually. However, the basket does not include asset classes such as real estate, precious metals or equities. If the development of these asset prices were factored into the CPI calculation, we would have had a much higher inflation rate in recent years.

The current basket of goods from the Federal Statistical Office can be found here: National Consumer Price Index.

Preventing the loss of purchasing power

Why is it that inflation affects all of us?

In an inflationary economic environment, leaving your savings in a bank account that does not generate interest is counterproductive. This is because, as the prices of everyday goods keep rising, your money is constantly losing purchasing power. Retirement savings that are only held in an account are also affected. In the following short video, we explain why maintaining purchasing power is crucial to preserving your wealth.

CALCULATE YOUR PURCHASING POWER

Inflation calculator

Use our inflation calculator to see how much you are directly affected by inflation and how much your money loses purchasing power over time in a bank account.

20 years

Explanations of the calculation / disclaimer:

The online calculator aims to show a hypothetical future course of the purchasing power deterioration of each currency. The value of money is assumed to be the purchasing power of money. The loss in value due to inflation therefore results from the loss of purchasing power of money over the period under consideration. On the basis of the parameters entered, the inflation calculator shows how the value of money is impacted over the selected period and states for each year the value of today’s purchasing power as well as the assumed future loss of value in relation to the beginning of that period.

The assumed future inflation rates and return expectations of the RealUnit may differ from the values actually recorded in the future. The results of the calculations are for information purposes only and do not constitute an offer or a solicitation of an offer. There is no guarantee for the currency, accuracy and completeness of the results. RealUnit Schweiz AG assumes no liability in connection with the calculation results. Investment decisions should be made after a thorough reading of the current prospectus, which can be found on the Downloads page. 

Preventing the loss of purchasing power

How can savers protect themselves from inflation?

  • Liquidity planning

    First, think about how much money you will effectively need to have readily accessible in your account over the next few years to meet your regular expenses and realize any goals you may have. Be sure to also factor in unforeseen expenses, such as a kitchen appliance replacement. As a rule of thumb, you should have three months of household income available in your account at all times. You should make the rest of your money work for you and invest.

  • Investor Profile

    Consult your financial advisor and develop a personal risk profile. For this, you should factor in the goals of capital preservation and inflation protection, and also your investment return expectations. The No. 1 rule of investing is: the higher the expected return, the higher the risk. Conversely, the higher your safety expectations are, the less your investments may fluctuate. Your investor profile should be revised at least every 2 years, to accurately reflect changing circumstances, needs and priorities.

  • Investment proposals

    Most banks will recommend their own investment funds or other products. These have the advantage that your investment is spread across many different asset classes. The big disadvantage, on the other hand, is that products aimed at conservative investors mainly include bonds, making up between 45 - 70% of the total investment. These supposedly safe bonds lose value every time interest rates rise. Most investment professionals therefore advise against buying bonds in an inflationary environment, as it is very challenging to achieve any return at all from issuers with good credit ratings.

Investments

Which investments offer the best protection against inflation?

The focus should be on scarce real or tangible assets, as they can keep pace with rising prices.

Helpful assets and investments against inflation are considered to be:

It is no coincidence that the RealUnit is backed by exactly real assets like these. The goal is to preserve the long-term value of your savings and provide increased protection against inflation and crises.

Current composition of the RealUnit:

RealUnit Asset Allocation

  • Physical metals* (40%)

    - Primarily physical gold and silver
    - Various physical industrial metals

  • Shares (32%)

    - Focus on listed shares from Switzerland
    - Solid companies with crisis-resistant business models and long-standing dividend policies

  • Swiss Francs (physical)* (12%)

  • Nominal assets (8%)

  • Alternative investments (7%)

    - Unlisted shares and alternative funds

  • Crypto (1%)

*stored outside the banking system in Switzerland
Balance as of 12/31/2022