To some, money is just a piece of paper or a number on their bank account. For those who benefit from what money can do and how to increase your wealth, it is some kind of magic. But in that world we have wizards who control it, and beholders amazed by it without understanding. Because although it may seem that the world is financially on fire, yield can still be achieved. Only there are a lot of misconceptions as well. One of DHF Capital S.A. onboard specialists regarding strategic investing, is Rowan Rozemond. As board member and Head of Global Investor Relations he provides clients, investors and sales professionals daily with keen advise about the magical game called investing. This time, a dive into the YOY inflation rate. What does it mean, how can you interpret the numbers the right way and what are the common mistakes?
What is the YOY inflation rate?
First lets dive into that thing called YOY inflation. What does it mean? The YOY inflation rate is the percentage change in prices from one year to the next. The YOY inflation rate for 2023 is predicted to be 6.6%. This means that prices are expected to rise by 6.6% over the course of the year, while they already rose significantly in the last years. The main drivers of inflation are expected to be food and energy prices, which are both forecast to rise by 3% in 2023. Housing costs are also expected to contribute to inflation, with a predicted increase of 2.1%. These factors will offset some of the downward pressure on prices from weak economic growth, but also on equity stock markets.
These numbers can differ from a countries own inflation number. Everyone has its own problems. While the U.S. momentarily faces a debt crisis and Europe shows some economic growth inhibited by import troubles, countries in South America are struggling with sky high inflation rates of percentages in the hundreds. So, for an investor, there are many markets, many opportunities and many dangers. But what to do? Where to go?
Common mistake: "YOY inflation is getting lower!"
When it comes to the YOY inflation rate expectations and adaptations, Rozemond finds people on a minds split of choices. "On regular basis I speak to investors, clients and sales professionals. The drop of the YOY inflation rate is experienced as an inflation decrease. But in reality it is not. Inflation rates are still being enormously high. They have just become less enormously high, you know what I mean?"
The DHF Capital S.A.'s COI finds it intriguing how people lose sight of one important factor in all this: "To keep the same amount of purchasing power, people must have accumulated 14,7% more Euros to be equally wealthy as in 2020. But here's the game. As a European citizen, what if you invested everything in for example American S&P 500 on 31st of December 2020? Your wealth would have grown with 47%. With inflation to matter, that is a net growth of 32,3%! Put simple: if you did not invest at all you lost 14,7% of wealth. If you did invest you gained 32,3%. A difference of 47% while the financial world did not bleed that much since the eighties. Conclusion: As an investor you can outlast this inflation thing with smart choices."
Money that is not put to work will go on a inflation fueled YOY-ride
There is never a bad time to invest, but it matters where you invest. "It's very important to do something with your money," Rozemond reminds us. "Because otherwise that money will find another job." That other job is better specified as money flowing away into daily expenses, inflation and other financial weather conditions instead of being the cornerstone of your assets. "Just last week I spoke to an investor who was convinced by its take on macroeconomic data, that cash is king right now. Only when we start doing the math together it really struck him. It's a reminder that numbers don't lie. At first, the changes of him catching the bottom or the top are slim at most. Secondly he took inflation as nominal number, not a Year on Year compounding variable."
DHF Capital S.A. knows the game
What if you are not that much of a gamer or a financial wizard? What if you don't like the rules at all? What if you are such a beholder amazed by it all? You don't have to play yourself. Let us play the game for you. DHF Capital S.A. is a securitization company experienced in wealth management. We invest, we learn, we develop and we thrive, together with you. Eager to learn more? Reach out to us with no strings attached to discuss your opportunities and chances.