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Over the past few years, the rate of inflation in my country has outpaced the interest on my savings account, meaning that I have been losing money as its value has dropped faster than its quantity has increased. This has occurred despite the economy undergoing nearly unprecedented growth.

I do not have high hopes of inflation decreasing in the future, especially should another economic crisis occur. This situation generally resembles having all of my money invested in a stock that is on a downward trend with nothing suggesting it's going to change. The proper response would be to sell the stock, which is what I'd like to do now.

What should I convert money to in order to preserve, or preferably increase its value while accruing as little risk as possible?

Should I Invest in rare metals like gold?

Should I convert it to a different currency that has a lower inflation rate? Wouldn't the conversion fee be too high?

  • Letting us know the country may allow people to write better answers. – mhoran_psprep Mar 20 at 12:02
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    "This has occurred despite the economy undergoing nearly unprecedented growth." Actually, that's a cause of inflation. – D Stanley Mar 20 at 14:03
  • What sort of gap are you dealing with? If you're talking about a savings rate of 1.5% and a 2.5% inflation rate you're chasing your tail but if you're talking about Venezuela and a 20% inflation rate against no savings rate then there's something to consider. Specific country can impact the answers too because countries like Venezuela have harsh forex controls. – quid Mar 20 at 17:21
  • I'm in Czech Republic. The inflation in the past year or two has been between 2 and 3%. My savings account nets me 0,9% yearly on interest. It's not a large gap, true, but it's still losing money – Gweddry Mar 20 at 18:19
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Unfortunately there may not be a good, safe way to store cash in your currency. Gold is volatile, so there's risk involved there. You could exchange for another currency that is less inflationary, but what happens when you need it back in your home currency? Due to inflation (and everything else being equal), the other currency will be worth less relative to your currency, so you will get more of your currency but roughly the same or less buying power (in today's value) when you exchange back.

Also remember that inflation is a currency-wide measure and does not fully apply to individuals. Are your normal expenses going up with inflation? Does your rent or mortgage fluctuate or are they fixed? For an individual, inflation manifests itself in things like the cost of food and utilities, which are usually a relatively small part of your overall living expenses.

If you're planning to keep your savings for a long time (like years) then you can look for investments like inflation-protected bonds (they have different names in different countries) or invest in equities and other items that benefit from inflation. Both have price risk, though, so they aren't suitable for safe short-term savings.

I would shop around for better bank accounts, or look for other risk-free vehicles (in the US Certificates of Deposit or CDs can earn higher interest rates in exchange for locking up the money for a period of time). As an individual, I wouldn't worry about inflation too much. You can't control it, and there isn't a lot you can do to avoid it unless you can use a different currency as your base (meaning to buy food, shelter, etc.) If things do get tight, you can more easily cut expenses than hedge currency risk.

  • If the native currency is inflationary, upon later exchange back to native currency, wouldn't one get more native currency and more buying power? What am I missing? – Bob Baerker Mar 20 at 16:05
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    @BobBaerker You'd have more local currency but it would have roughly the same buying power. The apples you bought for $1 a year ago might now cost $1.10. Inflation is all macro-level, though. – D Stanley Mar 20 at 16:18
  • You'd have the same buying power but more currency A because you switched to currency B back and then after inflation, back to currency A. But had you not switched, currency A would be devalued and you'd get fewer apples. What threw me is that you wrote ".. so you will get the same or less of your currency (in today's value) when you exchange back." – Bob Baerker Mar 20 at 16:28
  • @BobBaerker That's what I meant by "in today's value" - I've edited to (hopefully) make it more clear. True you would get more nominal currency but roughly the same buying power (again, in theory and at a macro level). – D Stanley Mar 20 at 16:31
  • "the other currency will be worth less relative to your currency," Are you saying that if Currency B has a lower rate of inflation than Currency A, then the amount of Currency A that Currency B buys will be decreasing? – Acccumulation Mar 20 at 16:44
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Inflation is the result of increase in the supply of money, your currency. Your Central Bank controls this. Gold is international and is not controlled by any single Central Bank. Their may be cartels that attempt to manipulates gold price, see Libor scandal, but for long term store of value, throughout the centuries, nothing has beaten gold.

That said, investing in particular assets that are rising faster than inflation may help, i.e. where is the growth. Thought timing such investing is very difficult. Stocks can be tricky depending on the country as certain country may even tax loses.

  • What did the LIBOR manipulation have to do with gold? – quid Mar 20 at 17:30
  • Stocks carry a lot of risk, especially for someone who doesn't know much about the stock market – given the 80-20 rule being in effect (only 20% of investors making money on the stock market while the rest lose them), I'm confident I'd just be throwing my money away. Upon looking at the price of gold throghout time, it seems too volatile (although it's always quite precious). Is there no more stable commodity? – Gweddry Mar 20 at 18:26
  • @Gweddry Betting on your local stock market is betting that you countries economy will do well. It is a hedge against increasing money supply as this is one asset that usually new money is placed within. For your local economy (if not England, US, Germany, or France, perhaps Australia) then yes, this would be risky. The price of gold is irrelevant, sine this price is based upon FIAT money now. Gold has been a stable commodity for most of time. There were attempts to control the price of gold to a paricular currency, but the 70's and Nixon nixing the gold standard showed this was impossible. – paulj Mar 20 at 19:03
  • @Gweddry where on earth did you hear about this 80-20 rule where 80% of market participants lose money? – quid Mar 22 at 1:00

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