How to mitigate (or reverse) the effects of inflation on savings? Courage is the recipe – Corriere.it

There is only one way to beat inflation and protect your savings: to invest, having a medium to long-term time horizon. This is the only way to protect yourself against rising prices and the consequent loss of purchasing power. In Italy, inflation reached a double-digit rate, 11.8% in November (a figure in line with the previous month), effectively transforming itself into a sort of silent tax, which day after day erodes the savings left to idle in the current account. A phenomenon that is not only Italian and that is proving to be much more than a simple blaze. According to a survey by the ECB, the European Union should end 2022 with an average price increase of 8.1%, which will be followed by two more years of sustained inflation: 5.8% in 2023 and 2.4% in 2024. An increase in prices that weighs twice on household pockets. On the one hand it increases expenses, from bills to the supermarket trolley, and on the other hand it causes savings to lose value. In such a scenario, immobilism does not pay. On the contrary. And the Italians seem to have understood this.

The trend reverses

Thus, if during the pandemic 27% of Italians chose, as the best strategy to protect themselves from financial uncertainty, to keep their savings in the current account (19%) or in the safe (8%), today the situation has changed, with the share of investors rising to 34%, 4% more than in 2019 (VII Consob Report on the investment choices of Italian households). The preferred instruments remain certificates of deposit, postal savings bonds and Italian government bonds, confirming the prudent approach typical of households (three out of four Italians say they are risk averse). In the first six months of this year, in particular, more than 16 billion were invested in BTPs, with the aim of benefiting both from the increase in returns and from the possibility of subscribing to inflation-indexed bonds. Only the BTP Italia issued on 20 June, indexed like all these bonds to national inflation, received orders for over 9 billion euros. At the same time, insurance and pension products were also rewarded, with over 12 billion invested, while worries about market trends penalized mutual funds, with net disinvestments of 4 billion.

Caution or Courage?

These numbers reveal all the caution of Italians as investors. A caution that may not always help fight galloping, double-digit inflation. Any form of investment capable of offering a return, even if minimal, always better than parking in current accounts or in a safe. Slightly raising the risk bar, for, and by embracing a medium-long term investment approach, it is possible to obtain better returns, which are also able to completely cancel the negative effects of the high cost of living on savings. The statistics of the last 20 years speak for themselves, showing an average annualized return on the stock markets, net of inflation, of 5.4% (Credit Suisse Global Investment Returns Year book 2022). In short, to protect yourself in a context of high inflation, rising rates and a slowing economy, simply moving your savings is not enough. Pandemic and geopolitical instability have once again demonstrated the unpredictability of events and the strength of their impact on the economic and financial world. It is necessary to be able to adapt to market conditions and adjust portfolios according to the often hidden opportunities that the market itself can offer.