How to beat inflation through investing

Oct 11 2022 | 2 min

Inflation has risen sharply across the world’s economies due to many factors from supply chain issues to energy constraints linked to the ongoing Ukraine conflict. Global inflation is predicted to reach 8.7% in 2022 before declining in 2023 following responses by central banks.[1]

Why this matters for investors

Money gives us freedom, especially in our later years when we no longer earn a regular income. We should ensure that we have enough money so we don’t outlive our assets.

First, we must live within our means during our working years so that we can save a portion of our earnings for the future. Second, we must ensure that our savings grow fast enough to meet our needs.

Money in a savings account is often seen as the “safe” option. However, inflation will erode the purchasing power of the money in your savings account over time. The higher inflation rises, the faster your savings will lose value.

People are also living longer, spending on average 22 years in retirement. This means that they must accumulate larger sums before retirement to fund their non-working years.[2]

What you can do

You should always set aside some money for emergencies or future expenses, such as a vacation or new car. But you only beat inflation by investing.

Investing creates value over time and may also generate regular income. But it also entails risk. The assets in which you invest may rise or fall in value with market cycles and events.

A common mistake that many investors make is that they panic when the market falls and sell their investments at low prices to avoid further losses. Selling during a market downturn causes a permanent loss that cannot be recovered.

Investors should generally take a long-term view and ignore short-term market volatility. In the absence of fundamental factors that impair the value of certain assets permanently, unrealized losses during market downturns are usually recovered when the down cycle ends and growth resumes.

A sound investment strategy begins with a well-constructed portfolio based on your risk tolerance, objectives, time horizon, and financial obligations. A well-constructed portfolio entails allocating assets to diversified investments that are well positioned for long-term growth. If the assets are uncorrelated, losses in any given investment will be offset by gains in others over time.

But starting with a well-constructed portfolio is not enough. The portfolio must be managed actively as the environment changes, replacing assets that have limited potential with more promising ones.

Only one thing is certain. Your wealth will erode over time if you do not invest it wisely.

How we can help

The creation of wealth requires hard work, perseverance, and acute business acumen. But the preservation and growth of wealth requires a very different skillset. The Family Office specializes in preserving and growing your wealth, so you can continue to pursue whatever matters most to you.

As the Nobel Laureate Robert Merton has said, while it’s not reasonable to expect everyone to be a portfolio management expert, everyone should have access to someone who is.

The Family Office has helped many clients in preserving and growing their wealth in uncertain times, navigating unchartered territories in global markets.

Contact us now by clicking on 'Schedule a call' below for an initial consultation.

 

[1] Euromonitor International - https://www.euromonitor.com/article/global-inflation-tracker-q3-2022-inflation-may-have-peaked-but-energy-prices-continue-to-cause-headwinds
[2] UBS - https://www.ubs.com/microsites/nobel-perspectives/en/latest-economic-questions/finance-economics/articles/changes-retirement-savings-rules.html

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