Investing Against Inflation: Strategies to Protect Your Capital


Inflation is an issue that has returned powerfully to the forefront in 2022, with the general price level rising well above the 2% threshold (a target pursued by the ECB). The return of inflation has a devastating power against savings, so it is important to know which investment solutions are best suited to defend against the loss of purchasing power. Let’s analyze which are the best tools that allow you to protect your capital from inflation and which are the best brokers to use.

Inflation and Investments: Risks

Before going on to describe anti-inflation investment strategies, it is important to understand the meaning of the term inflation. This is a phenomenon that generates a general increase in the price level and can have different triggers: the presence of excess demand on the consumer side, the excess of circulating money or, again, the increase in production costs.

Generally speaking, inflation does not in itself represent a major problem, as it is a recurring event. The real danger, however, is its negative impact on the liquid assets of savers. Keeping one’s savings immobilized in the current account generates a loss of purchasing power that grows as inflation increases.

Before understanding which are the best investments against inflation, however, it is necessary to take a few steps back. The vast majority of investors tend to have the wrong approach to investing. Why do people invest their money? “To get richer!” While this is not completely wrong, the concept from which it is important to start is quite different.

What should guide an individual’s investment choices should look very closely at inflation. Investing should not be identified as a speculative activity, but also and above all with the purpose of protecting capital. The rationale is to build a portfolio that is able over time to keep up with (and possibly do better than) the level of inflation. Only in this way is it possible not to lose money in terms of purchasing power.

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The Best Assets to Invest in

Having outlined the meaning and the risks of the inflationary phenomenon, it is now time to find out which assets are the best to invest in to protect the capital.

The refuge par excellence is represented, unfortunately or fortunately, by the stock market. Especially in the presence of abnormal inflation values (such as, for example, the 4.8% recorded in Italy in January), the stock market is the only instrument that allows you to beat this level. Naturally, shares are risky assets, so it is advisable to establish a medium-long term time horizon in order to take advantage of their advantages.

Another useful solution for lowering the weight of inflation is similar to equities, but involves investing in a basket (i.e. a collection of several securities). Stock market indices, in fact, are a useful tool for diversifying the portfolio and encompassing multiple sectors. The main stock market indices in Europe are the Italian FTSE MIB, the German DAX 30, the French CAC 40, and the English FTSE 100, while overseas we mainly have the S&P 500 and the NASDAQ 100.

Online Trading: The Best Platforms for Investing

As has already been described, the general increase in the price level can lead to a significant loss in terms of the purchasing value of the currency. In order to look for effective tools that can ensure returns that are higher than inflation, one can turn to online trading platforms. The market offers numerous solutions and each has its own strengths. In general, it is always important to use regulated brokers, which have licenses and authorizations recognized by the main supervisory bodies (CySEC, CONSOB and FSA above all). Below we are going to comprehensively analyze 3 of the leading online trading platforms: eToro, Plus500 and XTB.

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eToro

The most well-known broker is probably eToro, one of the most popular trading platforms among investors. This innovative broker offers a wide experience both in terms of assets and in terms of functionality. As for the former, eToro allows you to trade a wide range of instruments: stocks, currencies, commodities, indices and ETFs.

On the functional side, instead, eToro is characterized by some exclusive and innovative services. In particular, we mention Copy Trading and Social Trading: the first allows you to copy the strategies of the veterans of the platform, the second allows you to exchange views and opinions with other users.

Another strong point is the presence of very advantageous commissions that allow eToro to present itself as one of the best trading platforms on the market.

Plus500

Another reliable broker is Plus500, a platform that allows you to trade online with CFDs on a wide range of instruments: indices, stocks, currencies, commodities and cryptocurrencies. It is one of the most widely used brokers due to the presence of some of the most advantageous spreads on the market. 

The Plus 500 platform does not have any negotiation or management commissions: as anticipated, the only cost applied is the spread, the difference between the purchase price and the selling price. The minimum initial deposit is 100 Euros, making the platform accessible to all investor profiles.

XTB

Finally, the last broker we are going to look at is XTB, an operator that is very appreciated especially for its low costs related to cryptocurrency trading. The commission profile, in fact, is based on single units of measurement of transaction volumes (trading lots). This particular feature makes XTB broker one of the best solutions to speculate on cryptocurrencies. In addition, the platform offers a comprehensive training package, making it very useful for newbies to learn.

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Final Thoughts

In light of what has been analyzed, it is important to note that there is no single way to protect your capital from inflation. Fortunately, there is no shortage of good online trading platforms on the market, so it is mainly a matter of preference, linked to specific needs.

In order to achieve performance that offers adequate protection of savings against inflation, it is necessary to adopt a proper portfolio diversification and move towards potentially riskier assets that can offer higher returns in the long run.


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