What and how to invest in times of high inflation?

"Money creation multiplier" - this is the name of the mechanism that, thanks to loans and deposits, allows banks to multiply money. Banks create them de facto out of thin air (Latin ex nihilo) because they have to keep each deposit National Bank of Poland only a tiny fraction of it (3,5%). The rest (96,5%) can be introduced to the market by granting loans.

Unfortunately, inflation works in such a way that the more people need money, the more loans they take without making deposits, the more money will be put into the market creating an oversupply of money. With the simultaneous, disproportionate increase in the mass of products and services, an imbalance is created between the increased supply of money and the lower demand for this money (much more money than products and services). As a result, money loses its value and prices go up. This is mainly the reason for the creation of inflation - the biggest thief of our savings with impunity.

How can you deal with inflation - how to understand the value of money and how to invest in this period? A specialist - Dr. Grzegorz Mizerski, CEO and co-founder of the Crowder Group, expert in innovative real estate investing will talk about it.

Who is to blame for high inflation and how to deal with it?

During the pandemic, the phenomenon of money accruing faster than real goods was growing. With the reduced amount of goods and services available, and with more money being offered, prices began to rise drastically. There are factors independent of the state's activities: the war in Ukraine or the energy crisis in the European Union, which also affect the increase in prices, but these external factors contribute only half to the very high inflation in Poland - the highest in 25 years.

How can you deal with inflation? It is not worth keeping your money in deposits, because the profit offered by the bank for entrusting it with your money is in no way even close to the current inflation rate. Using deposits with such a high rate of price increase simply reduces the value of money. It is also worth remembering not to invest, for example, in the so-called "Dirty Eight":

That's what I called a group of eight instruments in which investing in times of high inflation is very risky and with a high probability will end in loss. These are, for example, investments in aparthotels or condo-hotels, alternative emotional assets (e.g. wine, art, old cars), shares of growth technology companies, units of funds with high management fees or corporate bonds of weak companies - explain Dr. Grzegorz Mizerskiebook authorThe Prudent Investor's Guide".

What to invest in during inflation?

I recommend Solid Ten. This is a group of ten instruments that are worth considering. The most important ones include inflation-indexed treasury bonds, fixed income assets, e.g. commercial real estate, shares of foreign REITs, shares of Polish value companies that pay fixed dividends.

For advanced investors, I would recommend American value companies - which pay dividends, e.g. from the group of so-called Dividend Aristocrats. These are companies that pay dividends continuously for several dozen years (e.g. Coca-Cola). Investments in precious metals, shares of Polish companies - food producers and annual crowdlending loans secured by mortgages, which have recently appeared on the market, are also worth considering. – advises Dr. Grzegorz Mizerski, CEO of the Crowder Group.

Investor's Decalogue

There are three main dimensions on which any investment can be judged: profitability, liquidity and security. It is worth remembering that there is no Holy Grail of Investmentwhich would be the only reliable instrument or way and be both very safe, profitable and liquid.

A bank deposit is admittedly very safe, but not very profitable and medium-liquid. Similarly, inflation-indexed treasury bonds are more profitable than bank deposits, but less liquid than them. Works of art, on the other hand, are neither liquid, profitable, only some of them, and not always safe, because we can find a copy.

Speaking of the Decalogue: we must remember that there is no profit without risk. Investing always involves the risk of loss – even of the entire amount invested. It is also worth remembering to invest only the amounts that you can lose. One should also remember about the main sins of the investor, e.g. greed or lack of humility – explains Dr. Grzegorz Mizerski.

Not all of them, and not always, but real estate is a good asset class that pays dividends in times of high inflation. The profit from renting an apartment or from renting a commercial property can be satisfactory nowadays, provided that the rental amount is indexed inflation rate (CPI) In addition, it is always worth investing in inflation-indexed treasury bonds and in shares of foreign REITs, especially American ones. Contrary to common myths, for example, gold with such high inflation, and after subtracting its impact - does not bring satisfactory profits in real terms.

Source: Press Release, Crowder