Inflation beaters: how to protect your investments

Last updated on 12th December, 2017 at 04:12 pm

Beating inflation is a good foundation to grow your investment. Here are some strategies you can adopt to try and protect your investments.  

Inflation poses a great risk to investors because it can eat into your future savings and the interest too. Inflation, simply put, refers to the general increase in prices and the fall in purchasing value of money over time.  

Don’t invest all your money in cash

When you invest in cash you are generally putting your money in the likes of an interest-earning bank account. It brings the lowest risk when it comes to your investment but this often means that you are also exposed to the lowest returns and you are unlikely to beat inflation over the longer term. If you want to put your money in cash investments though, be sure to shop around and invest in accounts that provide the highest rate of return. Most banks publish their rates online. You may have to make some sacrifices to obtain higher rates, such as investing in fixed deposit accounts where you have to tie your money up for a specified amount of time, which could range from one month to five years and even longer.  

Consider investing offshore or in other currencies

Storing your wealth in rand-denominated bank accounts still leaves you exposed to the volatility of our local currency. The rand is very sensitive to changes, like political instability. Meanwhile, the US dollar has been a traditional ‘safe’ place for investors even when America is going through its own troublesome times.  

Scrutinise the fees you are paying

It costs money to invest, and the fees you pay typically go towards the fund management house, your adviser or bank that you’ve invested with. Check to see if you’re paying too much in fees as these, just like inflation, can eat into your savings. Speak to your financial planner if you’re unsure about how much you should be paying in fees and to investigate ways of saving on investment fees; for example, Sanlam Reality members can get up to 100% off primary asset management charges on money invested in Sanlam Investments flagship funds (click here to find out more).  

Have a good mix of investments in your portfolio

Keeping money in cash is safer than investing in the stock market. However, in order to beat inflation, you will have to expose some of your investments to inflation-beating investments such as stocks and shares, bonds, property and gold. Diversifying your assets will go a long way towards ensuring that you’re not exposed to just one asset class. So if, for example, bonds are underperforming and, as a result are unlikely to beat inflation, your share investments may still be doing fine. Property, another real asset, has also historically acted as an impressive long-term hedge against inflation. Don’t neglect one asset class in favour of another. If you’re unsure of where to invest, speak to a financial planner.