- Hans Weber
- December 7, 2023
Inflation to Gradually Decrease, Long-Term Investing Strategies Needed to Combat Its Effects
Economists predict a gradual decline in inflation during the second half of this year, with year-on-year consumer price growth expected to drop to single-digit values. However, a more significant decrease is anticipated only at the beginning of next year. Investors are likely to face challenges in effectively combating inflation, which erodes the value of their assets.
Jan Bureš, chief economist of Patria Finance, estimates that inflation will be 10.8% for 2023 and 2.5% for 2024. The core inflationary pressures are expected to remain relatively strong next year, even after adjusting for energy, food, and imputed rent effects. Consequently, the Czech National Bank is likely to proceed cautiously in reducing interest rates. Bureš expects the central bank’s rates, which influence commercial bank products, to decrease for the first time by the end of this year, with the basic rate potentially dropping from seven to 6.5 percent. However, even with slightly lower interest rates for mortgages and savings accounts, the current rates offered are insufficient to effectively combat inflation.
Nevertheless, it is possible to counteract inflation through thoughtful long-term investing. Financial advisor Lukáš Urbánek of Partners emphasizes the importance of never giving up the fight against inflation and offers advice on combating it. Urbánek recommends adjusting investment portfolios according to investment horizons. For shorter horizons, conservative and safe investment options such as savings accounts and short-term deposits are suitable, although they may not overcome inflation. Medium-term reserves (three to five years) can include higher-risk instruments with potential for higher returns, such as diversified investments in bonds, real estate, and stocks. For longer-term horizons (five years or more), a more dynamic portfolio with an increasing allocation to stocks is recommended, as the longer horizon allows for higher-risk investments.
Martin Novák, chief analyst of Broker Consulting, emphasizes the importance of diversification, regular investment, appreciation over time, and avoiding speculation when it comes to investing. He suggests considering bond funds focused on Czech government bonds as a complement to an existing investment portfolio. These funds offer attractive yields to maturity, diversification, and the potential for yield conversion during economic declines in interest rates.
In conclusion, combating the effects of inflation on investments requires thoughtful long-term investing strategies. By adjusting investment portfolios, considering appropriate investment horizons, and diversifying across various asset classes, investors can mitigate the impact of inflation and achieve reasonable returns. It is important to approach investing with a long-term perspective, focusing on longevity and avoiding speculative investments.
Article by Prague Forum
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- Hans Weber
- December 7, 2023