Strategies for Shielding Your Wealth from Inflationary Impact
In the ever-changing world of finance, protecting your investments against inflation is crucial. Here's a comprehensive guide, based on expert insights and market trends, to help you safeguard your portfolio.
Real Estate Investment Trusts (REITs) have consistently outperformed the inflation rate over the past 50 years, particularly those that invest globally and are traded on the stock exchange. This makes them an attractive addition to any equity portfolio, offering a potential inflation-proofing solution.
Consumer goods or food companies, as well as agriculture machinery and raw materials suppliers, are sectors where companies with strong market positions can pass on higher costs to customers. This makes their shares likely to benefit from inflationary pressures.
Stephan Albrech, CEO of Albrech & Cie. Asset Management AG in Cologne, emphasises the importance of diversification. A solid equity portfolio should be based on the broad world market, with a share of 50 to 80 percent. Investing in equities, ETFs, or actively managed funds offers broad diversification.
However, focusing on current trends such as New Energy, Gaming, and Blockchain can lead to speculation rather than investment. It's essential to maintain a balanced approach.
Tangible assets such as equities, real estate, commodities, and gold help protect against higher inflation. While excess liquidity may find a home in the gold portion of one's assets, it's important not to hold more cash than necessary at the moment.
When central banks intervene to limit inflation, cash is the unrestricted winner of interest rate hikes. This is because it offers a risk-free investment opportunity with potentially high returns. However, cash is far from trash, as it's currently called.
Banks benefit from the inflationary trend towards the end, as central banks will eventually have to react with higher interest rates, which benefits the financial industry by enabling higher margins due to wider interest spreads between lending and borrowing.
Conservative investors with less than 30 percent tangible assets in their portfolio have too little inflation protection. To address inflation in your stock portfolio, consider adding diversified investments such as inflation-protected bonds, real estate funds, or commodities, alongside a mix of active and passive equity funds. A broad and diversified portfolio with at least 3-4% annual returns is recommended to achieve real value preservation or growth despite inflation.
The total amount private investors invest in index funds is 60 billion euros, which is significantly less than the 2,000 billion euros lying idle on savings accounts and as instant access deposits. Investors can supplement their large equity core with various instruments in regions and themes where they see particular opportunities.
In Germany, there are currently 2.5 million savings plans, with the majority of the money flowing into equity ETFs. This trend indicates a growing awareness among investors about the importance of protecting their investments against inflation.
In conclusion, a well-balanced and diversified portfolio is key to navigating the challenges posed by inflation. By incorporating REITs, tangible assets, and a mix of active and passive equity funds, you can create a portfolio that not only preserves but also grows in value despite inflation.
