Inflation rose by 3.8% in July, which is higher than economists had previously expected and partly driven by a sharp rise in air fares. The Bank of England predicts inflation will peak at 4% this month before gradually easing back towards the 2% target for 2027. If you’re looking for investment advice in Nottingham, we share ways to protect your wealth against inflation.
At the time of writing, the UK has the highest rate of inflation among the G7 economies. The recent inflation rise has prompted many people to ask pressing questions such as, “Am I invested right? Is my money adequately protected against inflation and market volatility?”
Rising inflation and market noise erode wealth
Inflation erodes wealth, and even when a rise in consumer prices doesn’t seem too high, it can still have a big impact on buying power. If you’re trying to protect your savings, fund your retirement, or build a legacy for the next generation, your wealth needs to be carefully managed. You also need a resilient investment strategy that can withstand market shocks.
When investors keep too much money as cash, inflation can lead to a loss in value. Some investors are tempted by “hot” opportunities, such as inflation hedges, cryptocurrencies, speculative stocks, or narrow thematic funds. But these can be volatile and fail to deliver consistent returns. This “DIY” investing approach is usually driven by emotions and headlines, which often underperforms compared to a more evidence-based strategy.
DIY investing and the risk of “hot ideas”
In times of rising inflation, many DIY investors can be drawn to investments that seem to be “sure bets.” But a reactive, short-term approach to investing can lead to emotional decisions that don’t result in lucrative returns. Whether people are too late or too early, poorly judged timings can leave an investor worse off than if they had stayed with a steady long-term plan.
Attempting to time markets with the hope of predicting when inflation will peak or when certain sectors will outperform is problematic. History shows us that consistently timing markets is nearly impossible, even for professional fund managers. Instead of focusing on what’s “hot”, look at how to build resilience to ensure your wealth survives and grows.
Evidence-based investment strategies
Instead of trying to time the markets, evidence-based investing is more resilient than reacting to inflation. This type of investment approach follows strategies with decades of data behind them, instead of speculation and headlines.
Below are three principles for evidence-based investing:
- Diversification across asset classes and regions for resilience
By spreading your investments globally and across different sectors, your portfolios will be less exposed to single swings in the markets. Although no asset can align perfectly with inflation, a diversified mix of equities, bonds, property, and inflation-linked securities could make your investment strategy more resilient. - Passive investing bucket strategy to protect cash flow
Many financial planners recommend structuring wealth into “buckets”, and we have a three-bucket approach. Our short-term bucket isn’t affected by market downturns. Held in cash and low-risk assets, it gives you access to money in the next 0 – 3 years. Our medium-term bucket takes on a little more risk and is held for 3 – 10 years. Our long-term growth bucket is aimed at compound growth and designed to outpace inflation over 10+ years, giving your money time to recover from market volatility. - Ongoing financial planning helps to ensure your wealth lasts
Inflation isn’t static, and neither are the financial markets. A sensible approach to investing involves ongoing portfolio reviews and financial planning to help ensure that your wealth strategy continues to align with your goals. This will reduce emotional decision-making and provide you with a robust investment strategy during turbulent periods. With the right approach, you can safely plan ahead and prepare accordingly.
Your local top 100 financial adviser firm
Inflation will rise and fall, but you can gain a competitive advantage with a passive investing approach. Remember, it’s better to spend time in the markets, instead of trying to time the markets. When it comes to investing, taking an ongoing, evidence-based, approach to your financial planning will ensure your wealth lasts for the long term. Diversification and a bucket strategy will help you protect your cash flow and your desired lifestyle.
At Balance: Wealth Planning, our ‘investment bucket strategy’ divides your money into different pots, depending on when you need access. Our financial planning team will help you manage your investments efficiently and passively, instead of relying on guesswork.
By taking a patient and consistent approach to your investment strategy, you can avoid reactive decisions and look forward to attractive returns. We align investment opportunities to your values and financial goals without compromising returns. With 10 risk level options, we also have a Good Practice Portfolio for those interested in responsible investing.
See our Balance Wealth Investment Philosophy.
For investment advice in Nottingham, get in touch with our financial planners.
Sources:
https://www.bbc.co.uk/news/articles/c741wkngndqo
https://uk.finance.yahoo.com/news/inflation-bank-of-englands-interest-rates-112027964.html
https://tradingeconomics.com/united-kingdom/inflation-cpi
https://www.bankofengland.co.uk/monetary-policy/inflation
