Reinhard Panse's Perspectives
Reinhard Panse's Perspectives
Podcast
30.9.2021
For a long time, this was a law of the financial sector. If the money supply increases, inflation also rises. However, this law has been overturned in recent years. Although the money supply has risen by an average of eight percent per year on a 10-year average, inflation rates have not kept pace. On a long-term average, inflation has not jumped over the two percent hurdle and investors in Europe expect inflation rates of between 1.6 and 2.3 percent in the future. However, this assessment is fundamentally wrong.
There are a number of reasons why inflation rates will rise massively in the coming years. Firstly, we are reaching the end of the labor supply. This shortage of labor and skilled workers will drive up wages and therefore also inflation to a certain extent. Secondly, globalization has reached its peak, which means that its effect of keeping inflation rather low is likely to be over. Thirdly, a CO2 tax will drive up inflation. In view of the climate crisis, it is again only a matter of time before this happens - and it is a certainty that governments will make it inefficient and therefore cost-intensive. Government debt will rise accordingly, which will also encourage a higher inflation rate.
In future, the inflation rate is expected to rise to an average of three percent per year, which raises the question: How do I protect my wealth? In principle, it can be assumed that the tangible assets that have maintained wealth in recent decades, i.e. shares, real estate and gold, will continue to do so in the future. This requires an increase in value of around four percent per year, of course after taxes, private withdrawals and asset management costs. If these are added, an increase in value of 6.8 percent per year is required. This is possible. For example, if you have five million euros at your disposal, you can divide it between three condominiums at 0.5 million euros each, an ETF on German shares for 500,000 euros and gold amounting to three million euros and would easily cope with the rise in inflation. That's not rocket science.
Reinhard Panse's Perspectives
30.9.2021
Reinhard Panse
The 10-year average inflation rate could rise to three percent per year. However, as a look at the figures shows, maintaining your wealth is unlikely to be rocket science.
For a long time, this was a law of the financial sector. If the money supply increases, inflation also rises. However, this law has been overturned in recent years. Although the money supply has risen by an average of eight percent per year on a 10-year average, inflation rates have not kept pace. On a long-term average, inflation has not jumped over the two percent hurdle and investors in Europe expect inflation rates of between 1.6 and 2.3 percent in the future. However, this assessment is fundamentally wrong.
There are a number of reasons why inflation rates will rise massively in the coming years. Firstly, we are reaching the end of the labor supply. This shortage of labor and skilled workers will drive up wages and therefore also inflation to a certain extent. Secondly, globalization has reached its peak, which means that its effect of keeping inflation rather low is likely to be over. Thirdly, a CO2 tax will drive up inflation. In view of the climate crisis, it is again only a matter of time before this happens - and it is a certainty that governments will make it inefficient and therefore cost-intensive. Government debt will rise accordingly, which will also encourage a higher inflation rate.
In future, the inflation rate is expected to rise to an average of three percent per year, which raises the question: How do I protect my wealth? In principle, it can be assumed that the tangible assets that have maintained wealth in recent decades, i.e. shares, real estate and gold, will continue to do so in the future. This requires an increase in value of around four percent per year, of course after taxes, private withdrawals and asset management costs. If these are added, an increase in value of 6.8 percent per year is required. This is possible. For example, if you have five million euros at your disposal, you can divide it between three condominiums at 0.5 million euros each, an ETF on German shares for 500,000 euros and gold amounting to three million euros and would easily cope with the rise in inflation. That's not rocket science.
About the author
Reinhard Panse
Reinhard Panse is Chief Investment Officer and co-founder of FINVIA Family Office GmbH. Until February 2020, Reinhard Panse was a member of the Management Board and Chief Investment Officer for HQ Trust GmbH, which is owned by the Harald Quandt family. From 2004 until joining HQ Trust GmbH in 2011, Reinhard Panse was Chief Investment Officer of the UBS Sauerborn business unit created within UBS Deutschland AG. From 2001, Reinhard Panse was a member of the Management Board of Sauerborn Trust AG and its legal predecessors. He was responsible for the investment strategy and played a leading role in the holistic asset management and administration of large private assets. Reinhard Panse began his career by taking over capital market and client support activities at Feri GmbH in 1989, after having founded and managed his own wealth management as managing director.
