As inflation eats up savings, here are five tips to grow your money

Inflation is a major threat to the value of savings. In February, consumer prices increased by 11.1 percent compared to February 2021. This is much higher than average inflation over the previous 10 years, which is around two percent. With most savings accounts in the Czech Republic offering no more than three percent in interest rates, large cash reserves and savings are losing value at an alarming rate.

This can have an immediate effect on your savings, but fortunately, inflation can also provide great investment opportunities.

“Investing is the only way to stay ahead of inflation,” said Vitali Butbaev, CEO of Saxo Bank in Central and Eastern Europe, who added that “keeping your money in savings accounts only makes it less valuable in the long term. The solution is finding the right investments in which to invest your money, as the potential return you might get over time can help you keep your purchasing power while ensuring long-term security and flexibility.”

So what should you look out for when trying to select the right investment opportunities? Saxo Bank’s experts gave us their top tips for beating inflation.

Turn your savings into profitable investments

Keeping your money in cash or in savings accounts leads to lost value, as it can't keep up with inflation. According to Kieran Phyo, Head of Asset Management at Saxo Bank, there are three options for ensuring your money keeps up with the cost of living:

"There are three paths you can take with your savings to react to high inflation. You can choose to keep your funds in cash and accept a loss of purchasing power. You can also lock your cash into a fixed term deposit. This will yield you some return, but it still won’t give you enough to maintain your purchasing power. The third option is to invest your money, which will give you the opportunity to keep or even increase your purchasing power."

The economic situation isn’t likely to improve any time soon as inflation is here to stay - so if you’re hoping that the effects of inflation will only be temporary, you should think again. “We have to be prepared to live in an environment of high inflation and high interest rates for quite some time,” said Tomáš Daňhel, Senior Relationship Manager at Saxo Bank.

Decide how much risk you are willing to take on

Before you start investing, you should carefully consider what level of risk you are prepared to take on. “If an investor cannot tolerate even the smallest chance of loss, they should keep money in cash, which is risk-free assuming the bank itself is safe. When investing, it's important to become familiar with market risk, including the potential size of returns and losses attributed to your chosen investments. Investing based on your own risk tolerance lets you sleep well at night,” says Phyo. 

However, as Daňhel points out, choosing not to invest will harm your savings even without the risk of investing them. “Is there any way to protect savings from losing value? Sure there is - with the right approach and successful investment, you can achieve an investment return that is higher than the return from a cash savings account.” Daňhel says.

"Investment risk and return are intertwined; the more risk you take, the more opportunity you create for larger returns. But you also expose yourself to potentially larger losses. The longer your money is exposed to stock markets, the more likely it is to give a positive return since markets tend to drift steadily upward with bumps along the way. In other words, a shorter time frame brings more uncertainty. It's important that you invest with at least a multi-year time frame in mind, looking past short-term drawdowns and focusing instead on healthy long-term gains," says Phyo. 

Asset allocation

As a broker facilitating investments, Saxo Bank offers more than 40,000 financial products such as stocks, bonds, exchange-traded funds, and mutual funds that clients can trade. If you let investment experts invest on your behalf, they’ll typically invest them in ETFs, stocks or bonds to give you a balanced portfolio and the best possible ratio of risk to potential gain.

"Asset allocation is about building the mix of investments that make up your portfolio. To start with, investing into stocks increases the level of risk, while bonds reduce the level of risk. But the process is really much more complex than this; the end goal is to maximize the returns for the risk taken. Another general guideline is that by spreading (diversifying) your investments, investors can enhance their expected return per unit of risk taken," says Phyo. 

Ensure your investments are properly managed

One of the biggest mistakes that investors tend to make is believing that once they have made an investment, they can sit back and wait for their money to grow. In reality, investing requires constant monitoring of the performance of assets and the wider economic environment if you want to make big returns.

“For many people, learning how to invest, researching the instruments, calibrating portfolio risk, and ensuring the portfolio remains appropriate is simply too much of a burden. This is why it might be a good idea to team-up with a portfolio manager. One of the biggest advantages of using a portfolio manager is that they will take care of your investments so you do not need to spend time on research and asset allocation. Instead, you'll have time to focus on your career and personal life.” 

Trust experts to grow your money

Successful investing also depends on skill and practice. As such, investors who do not want to use a portfolio manager should make sure to properly educate themselves. "You should have a solid reason for each and every investment you purchase. Furthermore, you should make sure the mix of investments in your portfolio is well considered and matches your risk appetite. You also need to monitor your investments such that they remain appropriate for future and prevailing markets," says Phyo.

By making use of a portfolio manager like Saxo Bank, investors can let experts do the hard work while receiving regular updates on the performance of their portfolio. 

"If you decide to partner with Saxo Bank as your portfolio manager, we will help you define your investment purpose and provide you with solutions that could be right for you. You will receive continuous reporting on the performance of your portfolio and what's happening in the market. And you can, of course, also use Saxo Bank’s platform if you want to trade on your own," adds Phyo. 

With inflation posing an ever greater risk to savings, investing is the only way to make sure your money retains its value. If you would like to have the best chances for making returns in inflationary markets, click here to read more about Saxo Bank’s investment opportunities.