Inflation and Investment Alternatives in Argentina: The Importance of Protecting the Value of Money Against the Constant Price Increase.
Inflation, if you live in Argentina, is a problem that has pursued you for most of your adult life, if not your entire life. This phenomenon, easy to understand, refers to the sustained increase in the general level of prices over a certain period of time, generally over a year.
However, in our country, it seems that it was not simple to understand, or at least that is how the people responsible for Argentina's monetary policy portrayed it. Between 2010 and 2020, inflation accumulated in our country was 1106.9%, which means that prices multiplied more than 11 times in just a decade. If we extend the analysis and take the period 2000-2020, the figure rises to 2633.6%, showing a marked alarming exponential growth throughout the period. (Source: World Bank, based on annual inflation index data)
The consequences are detrimental: it disorients consumers and producers, hinders economic growth, and envelops consumers in a complex game of conjectures without reliable information. Inflation is not just an abstract number or a percentage we lament over; it impacts our day-to-day life. Every time we go to the supermarket, fill up gas, pay bills, we see how our salary loses purchasing power.
And it not only affects salaries, but also our savings capacity. Saving is the foundation of growth, both macroeconomically and individually. This is where personal commitment comes into play, getting involved for one’s own benefit, and seeking to understand what alternatives we have to prevent the inflationary turmoil from devouring all our savings. Keeping them under the mattress, whether in US dollars or pesos, is not an option. We cannot afford to say we don’t have time to educate ourselves financially and find investment alternatives that maintain or increase the value of our money. Adopting a procrastinating attitude leads to an inevitable failure in personal finance.
Accumulating capital is a fundamental key to then invest in projects, businesses, or financial assets that generate profit for us. Doing nothing with our savings, in a high inflation context, means losing value. Therefore, we are going to explore what alternatives exist for those who have decided to take action today and take care of their personal finances.
Within the world of investments, we find so-called financial assets, which are titles or accounting records that grant the buyer the right to receive future income from the seller. Basically, they are a “paper” or contract that you buy, giving you the right to receive money in the future. Some well-known examples are stocks, bonds, and fixed terms. On the other hand, there are also non-financial assets, which derive their value from the characteristics that define them and not from the fulfillment of a contract. They are classified into tangible (cars, properties, etc.) and intangible (brands, copyrights, etc).
We are going to focus on financial assets, as these are fundamental instruments that allow us to invest our money and thus protect it from inflation. We need to know that they are classified into two main groups:
Fixed Income: These are investments like bonds or fixed terms where you know how much you will earn and when. They are like a “loan” to the government or a company that pays you back with a fixed interest. They are safe and predictable, ideal for those seeking stability.
Variable Income: Here we include stocks, investment funds, and cryptocurrencies. There are no guarantees of how much you will earn, and there is also the possibility of losing your investment. But this additional risk can translate into higher returns, making it more attractive for those willing to take it on.
A key relationship we deduce from this is that the higher the risk, the greater the potential return on our investment. Conversely, the lower the risk, the lower the profitability we will obtain. Which one to choose will depend on your investor profile.
Knowing our investor profile will be the first step we take before making any movement of money. Based on it, we can know which instruments best suit our needs. We have the following options:
Conservative: Prefers to minimize risks and protect capital, seeking safe investments with stable returns. Their favorite instruments are fixed income, such as bonds and fixed terms, which offer low returns but with a lower likelihood of losses.
Moderate: Seeks to grow capital over time focusing on a balance between profitability and risk. Combines fixed income and variable income instruments, taking on more risk than the conservative profile.
Aggressive: This investor is willing to take on high risks in exchange for high profitability. Their portfolio will mainly consist of variable income instruments, stocks, cryptocurrencies, or high volatility funds.
There are many websites that allow you to take a short but effective investor test to see which one fits your profile and thus start investing to protect your savings.
From now on, we need to see how and where we can invest our money. This is where clearing and settlement agents (ALyC) come into play; they are societies that act as intermediaries between investors and markets. Therefore, we will need to choose according to our requirements the preferred ALyC. One example to filter and see which one to select could be those that offer 0% commission; this is of great help for beginner investors to maximize their gains.
Once decided, we must follow all the necessary steps to open our client account. Generally, this involves providing personal information for the registration, a requirement that the ALyC needs to operate in the market on our behalf. After completing these requirements, we will be ready to explore the market. Before making decisions about which financial instruments to buy, it is essential to “fund” our account, that is, transfer the money we intend to invest.
Experienced investors often offer valuable advice when entering this world, and one of the most important is: never invest money that you are not willing to lose. Even the most conservative investments carry some degree of risk; none are exempt from it. It is our responsibility to decide how much risk we are willing to take.
Once we have our investor profile and funding ready, and the decision to take action is made, we will see some examples of the evolution of financial assets in recent times. For instance, if in 1997 we had invested 1000 USD in a new company called Amazon, today, without exaggeration, we would have about 2.5 million dollars. This example illustrates how an innovative, growing company can generate extraordinary returns for those who decide to invest and keep their capital over the years.
On the contrary, what would have happened if, instead of investing, we had opted to simply save those 1000 USD without taking any further action? Although the nominal amount would remain the same, in real terms that money would be worth less due to inflation. During that period, inflation in dollars was 90%, representing a significant drop in the purchasing power of money.
In other words, while investing in Amazon would have turned those 1000 USD into millions, saving without investing would have reduced the real value of our money. This example highlights the importance of investing not only to protect our savings from inflation but also to grow them and take advantage of the opportunities offered by financial markets.
From now on, deciding to start investing will transform into a long journey but one of great personal satisfaction. It is key to have patience and avoid trying to make “easy money” overnight. It is essential to make use of our time, no matter at what stage of your life you find yourself, to educate ourselves financially, as we must make decisions based on what we want and know.
This article aimed to provide an introduction to the world of investments, especially for those who have never read anything related to the topic before; therefore, it is crucial to continue seeking information, familiarizing oneself with the concepts so that little by little, we gain confidence for future decisions.
At Fingurú, you will find more articles that will help you expand your knowledge. You will see that the language begins to become a little more technical and specific, so I recommend reading slowly and not oversaturating with information, and above all, never losing sight of the final goal: to find ways to protect our savings from inflation and, why not, plan new experiences thanks to the returns obtained.
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