Against a backdrop of inflation-fuelled headlines, it’s no surprise investors’ nerves are verging on the unsettled, with many tempted to adopt a wait-and-see approach. But while we may be faced with the worst cost of living crisis in a generation, inaction is arguably the worst action of all.
By doing nothing, you’ll not only erode the purchasing power of the money you have but – as inflation soars above interest rates – your savings and certain fixed income investments may take a hit, too.
As we explain in this post, there are several things we can do to help make sure our money keeps working for us. But first, what got us to this point, and will inflation be sticking around?
Why is inflation so high?
As the pandemic spread in early 2020, economies kicked into emergency mode to establish an environment of extremely loose monetary policy – resulting in government spending on a scale not seen in over half a century.
When governments eased restrictions and economies recovered, the uptick in demand for goods was not met by supply chains still affected by lockdowns, with the situation compounded by the wider impact of war in Ukraine. With the supply-demand imbalance creating cost-push inflation, we’re now faced with spiralling living costs and a drop in the real value of our savings.
How will inflation impact you?
As prices rise, the money you have buys less – which means that no one is exempt from the impact of inflation. Whether your goal is saving for retirement or giving your children access to the best education, inflation needs to be a factor in your medium to long-term financial planning.
But as an international professional, you have exciting options, not least as you’re likely to be receiving a higher salary than your counterparts at home – but also because you have access to a range of tax efficient investments.
And the good news is that – with the right products and a strategic approach – inflation can still provide investment opportunities.
Does your country of residence influence the impact of inflation?
With inflation hovering between 8% and 9% in the UK (depending on which metric is used) versus 3.4% in Switzerland, investors in different countries can leverage their international status to seek out the best opportunities to counter inflation.
This map of inflation across the world paints a detailed picture.
So why is now still a good time to invest?
Regardless of your country of residence, it’s important to take steps to ensure your money stays working for you.
Leaving your capital in cash means missing out on an opportunity to invest. And if you’re looking to increase your purchasing power, you won’t do it by keeping your money in savings accounts or fixed-term deposit products.
What types of investment opportunities should you consider while inflation is high?
As a starting point, consider investing more in your existing portfolios (while prices have come down) to benefit from dollar-cost averaging, or diversifying into new products that specialise in inflation-linked returns. You can also look at alternative asset classes such as real estate, infrastructure and commodities.
Of course, your approach to risk will have an impact on the types of products you should consider – but have you explored any of these products?
- Real estate offers both equity and income in the form of rent – bricks and mortar are one of the most reliable assets that can future proof your income against inflation and as the price of goods and services increases, so can rents
- TIPS or treasury inflation-protected bonds offer a low-risk investment that can be incorporated into existing bond or platform portfolios – the income is inflation linked, which is ideal in times like these
- Loan notes offer opportunities to invest in the private debt market – with fixed returns that can surpass 10%, these are great short-term options that should stay ahead of inflation
- Structured notes – combining the qualities of equities and bonds, structured notes are an attractive option in times of market volatility as they offer down-side protection as well as capital uplift
Of course, we can’t ignore the market volatility that inflation has brought. But if equities form a part of your investment strategy, it’s worth remembering that this type of investment should always be viewed with a time horizon of at least 5 to 10 years. This not only gives plenty of opportunity to ride out volatility and price drops, but also provides the chance to obtain ownership of companies and funds at lower valuations. For an added bonus, companies can pass on rising costs to the end consumer, inflation-proofing their earnings.
Discover expert independent advice that’s tailored to your needs
Inflation may be beyond your control – but you can take advantage of the opportunities it creates to protect and grow your wealth.
At Lawsons Wealth, we provide expert independent financial advice and access to wealth management solutions that give you the freedom to live the life you want. We understand that everyone is different with their own unique set of circumstances and objectives. By taking the time to get to know you, we devise a strategy to help you achieve your goals.
To find out how we’ll help you benefit from the current rise in inflation, have a chat with a member of our expert team today.