With inflation rising in the UK, now is a good time to review your investment portfolio to ensure you are making the most of any potentially inflation proof investments. This is especially important if you are sitting on large sums of cash in the bank.
Inflation is a market force that’s impossible to completely avoid as both high and low inflation can be damaging to the economy and the value of your investments. If you don’t prepare for the effect of changing rates of inflation, it can have a significant impact on your lifetime returns.
Holding onto cash is often seen as a secure type of investment, but as inflation rises it typically causes a decline in the purchasing power of money.
Even if you keep your money in the bank and the banks increase the rate of interest they pay you, your savings may not grow fast enough to completely offset the effects of high inflation.
Listen to the “Cash Isn’t King When Inflation Reigns” Podcast Episode
Stocks and Shares
Stocks and shares or equities have historically been included in the inflation proof investments category as they tend to perform better during inflationary times because the economy is strong. However, companies will also have to pay more for wages and raw materials which impacts their value and whether inflation will help or impact a stock can depend on the performance of the company behind it.
You can choose to select, invest in and manage individual company stocks and shares yourself, or consider buying into a managed mutual fund, which will deliver a more diversified portfolio than you can usually create on your own.
It can also be worth investigating stocks that are growing quickly, such as tech stocks or pharma companies, as these should keep up with inflation or even boost returns beyond it.
It’s important to remember that stock markets can be volatile so there is always a risk of losing money.
When markets get rocky, it is tempting to exit the market to avoid further losses. This short-term strategy can result in a pattern of loss fuelled by buying high and selling low. Whereas, taking a longer term view could be more beneficial, as history has shown that financial markets typically go up in the long run despite short-term fluctuations.
Learn more about the importance of taking a long term view of the market by listening to the podcast below:
Listen to the “Time In The Market” Podcast Episode
Diversification Is Key
Wider portfolio diversification allows an investor to further reduce risk by combining a number of different asset types, such as property, bonds and shares. This helps reduce the impact of any single investment going down in value.
Diversification should take into account:
– overall asset mix – target markets within each asset class – risk profile – how it will respond to rising inflation rates.
The Benefits of Pound Cost Averaging
Another smart strategy is pound cost averaging, which means investing a fixed sum of money into a particular investment on a regular basis.
If you make a fixed regular investment you will buy more shares when prices are low and fewer when prices are high. Over time, this reduces risk by smoothing out price fluctuations which can happen quickly without warning (especially during volatile periods).
Staying invested for longer periods tends to offer higher return potential and also helps with compounding interest – meaning that after plenty years have gone by all those extra profits become even bigger than before.
Watch the video “What is Pound Cost Averaging?”
If you would prefer to read a transcript of this Pound Cost Averaging video, please click here.
When it comes to investing wisely during periods of economic uncertainty (such as a period of high inflation), there are a number of inflation proof investments you can consider. Each option comes with its own benefits and drawbacks, so it’s important to understand what each option entails before making any final decisions.
If you don’t want the headache of doing this on your own, let TT Wealth help. We’ll work closely with you to find an investment strategy that fits both your needs and financial goals so that you can keep up with inflation without sacrificing quality of life.
Having the right Investment Strategies can make a significant difference to your returns.
Download this free guide to help you understand what asset allocation is and the impact this strategy can have on the growth of your investments.
By submitting the form to request this guide, you agree to receive relevant messages from TT Wealth. Your email address will NEVER be shared or sold. You are always free to easily unsubscribe or customise your email preferences at any time. If you have any questions, please contact: email@example.com