Protect your purchasing power against inflation with these investments

Published on 27th September, 2022 at 04:25 pm

Inflation continues to soar, so having these investments in your portfolio can help bolster their purchasing power when it matters most.

Reading time: 2 minutes

In this article you’ll learn:

• What influences inflation.
• How to invest to beat inflation.

Inflation continues to rise, which means we need to get smarter about beating it. Stats SA says the main contributors to the higher annual inflation rate are price increases of transport, food, non-alcoholic beverages, housing and utilities.

Jaco van Schalkwyk, Certified Financial Planner^® at Plan-B BlueStar, authorised by Sanlam, adds that there are other reasons for the rising costs. These include:

• An unprecedented change mainly because of COVID-19 and the impact of lockdowns.
• A significant change in the interest rate environment.
• Supply chain bottlenecks.
• An underinvestment in resources, which has been exacerbated by the war in Ukraine.

There are a few assets you can invest in that could beat inflation, including:

Equities

Van Schalkwyk says that, typically, the best long-term growth assets are equities (shareholdings in companies). But which companies should you invest in?

“Look at companies with a positive cash flow. There’s been a drastic re-rating of equities. Companies like Netflix have lost 70% of their value, but conservative companies that pay good dividends have become more in favour,” explains van Schalkwyk.

Did you know you can invest from as little as R100? Find out more, here.

Property

Property tends to react positively to inflation, and typically holds its value over time despite inflation spikes. “Property can be challenging for those who have taken on a lot of debt. Don’t buy at the limit of what you qualify for; rather invest within your means,” suggests van Schalkwyk.

Reach property and other financial goals with this guide to the best vehicles.

Bonds

There are several types of bonds to consider. RSA Government bonds offer attractive yields that can help your portfolio beat inflation. “Look at inflation-linked bonds, as they provide a rate that offers typically 3% above inflation,” says van Schalkwyk.

Gold

There is a limited supply of gold, and therefore it’s considered a hedge against inflation. Diversification is key when it comes to protecting yourself from inflation. “You shouldn’t have more than 5% of your portfolio exposed to gold,” says van Schalkwyk.

Are we living through the worst?

Van Schalkwyk recalls a time when interest rates were higher. “People who had property investments in the ’90s saw interest rates of 23.5%. Current prime lending rates are around 8.5%, so they are still at multi-decade lows.

“Most people have been accustomed to low rates being the norm. We will get through this. It’s important to have a firm grasp on your budget. If you don’t have one, now is the time to create one,” says van Schalkwyk.

A qualified financial planner can help you select the right investments, taking market movements and inflation into account. Book a meeting with one today.