Expert advice on investing with inflation in mind

State bonds, savings, shares… the return on these different asset classes can be surprising if we subtract the inflation rate. What has made it possible to beat inflation and stay in the green in recent years? Charles Markowicz, expert and author of a book on stock valuation, explains his calculation method.

Charles Markowicz, an accountant for SMEs and specialized in the valuation of shares in the event of conflict between shareholders, regularly has clients who ask him for advice on investing their money. Some people are shocked when they learn that if we take into account inflation, the money put in a savings account has, in reality, lost its value, which therefore impacts their purchasing power. Which is logical, but we don’t necessarily always think about it. “The profitability that we are told is always gross of inflation,” warns the expert.

Which therefore led the expert to ask the question of what brings in more than what inflation makes us lose. He therefore screened different assets, over a period of five and ten years, and calculated the net inflation return, that is to say the return on the product from which the inflation rate is subtracted.

The assets evaluated are as follows: the State bond, real estate (which yields on average, hypothetical in its calculation 4% per year, gross), a fund composed of 25% of shares (and 75% of bonds), a fund composed of 50% stocks and a fund composed of 100% stocks. For these funds, the expert looked at the products of four Belgian banks, of different sizes (together representing 40% of the investment market), which opened their books to him.

What pays more than inflation?

What lessons did his exercise reveal? Over a period of five years, but also ten years, government bonds are in the red, by 3 and 2% respectively. The stock portfolio at 25%, given the bond share, is also in the red. A little less, but in the same order of magnitude.

Real estate, for its part, shows neither a decline nor an increase. This is because its return, adjusted for inflation, is 0% over both periods. Portfolios composed of 50% stocks give a return of less than one percent over five years and more than one percent over ten years, roughly speaking. “My conclusion is that these portfolios are the only way to preserve your wealth,” concludes Markowicz.

But if you want to do more than preserve your wealth and grow it, you should turn to riskier funds, composed entirely of stocks. There the yield is higher, showing up to 4% or more. “So of course, such wallets can be scary. If I talk to my clients about it, many of them tell me that they don’t want to go into stocks and take risks, that someone has lost a lot of money. There is risk and we cannot predict it. But the statistics show that there is a return in the long term and that the stock market makes you money,” explains the expert.

Returns on different types of investments. First group: 25% shares, second group: 50%, third group: 100%. First bar (dark blue): State voucher. Other bars: different banks.

It all really depends on the moment. Here, the comparison is made over the last five and ten years. “But if we had stopped in 2021, real estate would have a better return. For the stock market, there was a significant increase in 2021 but a crash in 2022. If we started investing at the end of 2021, we are therefore still in the red. But it always tends to smooth out in the long term,” notes Markowicz. An investment in the stock market would therefore be especially interesting for people who have money that they can put aside, and which they do not need immediately.

“People are asking questions”

Another investment product that exists on the Belgian market: so-called branch 21 and 23 insurance. Markowicz did not include it in his calculation, but the returns are usually low, so net of inflation, they would still be lower than the government bonds, he recalls.

This is because these products are often made – and this is a customer choice – by not wanting to take risks, to have security, reflects the expert, recalling a personal experience. On such insurance, he estimates having lost 20% in five years, taking into account inflation. “From what the banker I spoke to told me, there are a lot of people who are asking questions, who are saying damn. That they put money in the insurance company and they have zero return.” And this is where it becomes funny, because a product (insurance, government bond, savings account, etc.) which is supposed to provide security actually causes investors to lose money.

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