Investing to Beat Inflation for the Long-term
- Tom Eason
- Apr 2
- 3 min read
Updated: May 19
Being aware of potential pitfalls that could undermine your financial security
Embarking on your investment journey is a significant milestone filled with possibilities and new beginnings. However, being aware of potential pitfalls that could undermine your financial security is essential. One of the most prevalent issues is failing to protect against inflation. Known as the ‘silent thief’, inflation can gradually erode your savings and income purchasing power.
Inflation represents the rate at which prices for goods and services rise, leading to a decrease in the purchasing power of money. Over time, inflation can erode the value of your savings if your investment returns do not match or exceed the inflation rate. This erosion means that the same amount of money will buy fewer goods and services in the future, potentially jeopardising your financial stability.
For example, the average price of a white loaf of sliced bread (800g) has soared from just 10p in January 1971 to 140p in August 2024 [1]. Therefore, ensuring that your investments and income grow at a pace that outpaces inflation is vital. With our professional advice, we can help mitigate the impact of inflation on your pension and other investments, preserving your buying power.
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DIVERSIFICATION CAN BE A KEY STRATEGY IN PROTECTING AGAINST INFLATION. BY SPREADING INVESTMENTS ACROSS VARIOUS ASSET CLASSES, SUCH AS EQUITIES, BONDS AND PROPERTY, YOU CAN MITIGATE THE RISKS OF INFLATION ERODING
YOUR PORTFOLIO’S VALUE
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PREPARING FOR A LONGER LIFE
Another crucial aspect of investment planning is accounting for longevity risk. Many underestimate their life expectancy, leading to a potential shortfall in their savings and investment duration. According to the Office for National Statistics, a 60-year-old man today has an average life expectancy of 85, but there is, however, a chance he might live longer: 92 years (1 in 4 chance), 97 years (1 in 10 chance) and 100 years (3.5% chance) [2].
A 60-year-old woman today has an average life expectancy of 87, but there is, however, a chance she might live longer: 94 years (1 in 4 chance), 98 years (1 in 10 chance) and 100 years (6.2% chance) [2].
A realistic financial plan is essential to avoid prematurely depleting your savings and investments.
FINANCIAL SECURITY AT RISK
For those who have not factored inflation into their financial planning, the long-term effects can be detrimental. Fixed-income investments, such as savings accounts with low interest rates, may not provide sufficient returns to keep up with inflation, leading to a gradual decrease in real value.
STRATEGIES TO COMBAT INFLATION
DIVERSIFYING YOUR PORTFOLIO
Diversification can be a key strategy in protecting against inflation. By spreading investments across various asset classes, such as equities, bonds and property, you can mitigate the risks of inflation eroding your portfolio’s value. Equities, in particular, have historically outpaced inflation over the long term, offering growth potential to help preserve purchasing power. We’ll look at this in more detail later in this guide.
INVESTING IN INFLATION-LINKED ASSETS
Consider incorporating inflation-linked securities into your portfolio. These financial instruments, such as inflation-linked bonds, are designed to provide returns that rise with inflation, offering a hedge against the decreasing value of money.
REGULAR FINANCIAL REVIEWS
Consistent assessment of your financial strategy is essential in the fight against inflation. Regularly reviewing and adjusting your portfolio ensures that your investments are aligned with current economic conditions and inflationary trends. This proactive approach helps maintain the real value of your assets over time.
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Important: Capital at risk. The value of your investments and any income from them can go down as well as up, and you may not get back the full amount you invested. Past performance is not a reliable indicator of future results. Investments should be considered over the long term. This information does not constitute financial advice. Please seek advice from a qualified financial adviser before making investment decisions.
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