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When will inflation peak? Economists are not alone in asking. Fitch Ratings, an American rating agency, predicts that inflation in Poland will peak at around 20% in early 2023 before falling. Because price processes have strong inertia, CPI inflation is unlikely to return to single digits until the end of 2023, according to PKO BP.
Benefits of high inflation?
Some investors and ordinary people who anticipated price rises bought various items earlier at relatively low prices to sell them later for more. They certainly profit from inflation. Taking out a mortgage during inflation and repaying instalments in money with lower purchasing power is known as the inflation premium.
Where should money be invested? The property market changes month by month: prices of some property types fall while others rise. Cash buyers now purchase 70% of apartments on the primary market, meaning the proportions of mortgage-funded and cash investing have reversed.
High inflation is not the only problem. Recession is approaching, and wars beyond the eastern border have caused almost seven million refugees to enter Poland. So where should we invest during inflation expected to reach 20% soon?
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Prudence, education and openness
Before investing, it is advisable to cool your enthusiasm and clear your mind of anxiety-inducing information. Experienced investors advise prudence, resisting the crowd and controlling emotions. Second, portfolio diversification is fundamental to success in investing in any circumstances, not just when recession threatens and geopolitics is uncertain.
Not following the crowd also comes from education and finding investment ideas you personally feel comfortable with. Are you a homebody who likes spending time at home and visiting family? Do long forest walks with your dog relax you, and do you go sailing in Masuria when you have a longer holiday? Investing in Costa del Sol holiday property would not fit that lifestyle. Perhaps keep your capital in your home market and find a safe haven for investors there. Maybe land?
What to invest in? Perhaps property?
Gold, silver, platinum, other precious metals and inflation-indexed bonds remain safe choices. The property market faces substantial changes, while small rental apartments, small last-mile warehouses and dividend-paying REITs remain attractive segments.
Let us look at property, where conditions change rapidly. Rents are rising because arrivals from the east have expanded the pool of potential tenants. On the other hand, student numbers are falling in university cities, and universities are closing courses and moving lectures online to save money.
Is short-term renting worthwhile? It is getting harder to find tenants travelling for business, trade fairs, conferences or training. Many events have moved online permanently. There are fewer weekend tourists too: Poles are cutting spending, while foreign visitors feel unsafe because of fears of Russia's attack spreading beyond Ukraine. Longer-term apartment rentals are currently more profitable than short stays.
Experts expect a very difficult period for property. A wave of bankruptcies may come, particularly among investors who overleveraged. Loan payments have increased by nearly 100%, while significant changes in demand lie ahead.
Tokens and blockchain
Encouraging caution and protecting savings through sensible investment decisions is a healthy response to this dynamic situation. Diversifying risk and splitting savings among different products is recommended: inflation-indexed bonds, short private loans in a safe market, and, over longer periods, shares or cryptocurrencies.
Blockchain is revolutionising investment, among other things by creating tokens and democratising trading. Tokenisation brings security and entirely new investment opportunities. What is it? The transfer of real-world value to the digital world through blockchain technology. The chain of blocks secures assets. The technology accelerates contracting between parties and can eliminate intermediaries entirely. Many investors look at this new technology and see enormous potential.
Tokens make it possible to invest in property in both real and virtual worlds, or metaverses. Real property and income from renting it are already being converted into digital tokens and traded on global exchanges.
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Summary
The crowd is never right about investing
Inflation demands rational thinking. In any situation it pays not to follow the crowd, since the crowd is never right about investment. Search independently, deepen your knowledge and, above all, understand the business you intend to invest in.
It is always worth extending the investment horizon and then, for example, investing in gold or silver, preferably coins that are legal tender. Judging by the stock market trend, shares that were attractive recently are losing value. Property is and will remain attractive, particularly where land can be purchased, but every market changes. New technologies are now also modifying investment rules.
The investment climate is worsened by so-called black swans: unpredictable global events. After the pandemic came another, the war in Ukraine. Rising inflation could have been foreseen, but its extent is surprising.
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