MR MONEY MAKER: Inflation is back, but you can shield nest egg

Inflation is back – but you can shield your nest egg, says MR MONEY MAKER Justin Urquhart Stewart

How to protect your wallet

Inflation affects the value of your investments. So if you don’t get at least 4.2 percent right now, which is the current rate, after all your costs and charges on your investments, you’re losing value in real terms.

If you’re still on a cash pile for your long-term security fund, its value will be truncated.

This is very serious and something close to my heart.

On the rise: if you don’t get at least 4.2 percent after all your costs and charges on your investments, you lose value in real terms

I saw my father’s fixed pension and fixed income assets disappear in just a few years due to rapid inflation, mainly caused by irresponsible and ignorant politicians.

Don’t let this happen to your family!

Inflation proofing

After the inflation-ridden 1970s, I’m happy to say there are more things we can do to protect our wealth, but please don’t leave it to your mutual funds, products or even advisers to do it alone.

Check what you can do instead. Essentially, you need to grow your wealth at or above the rate of inflation. The nominal rate is, as I said, 4.2 percent, but we all have our own inflation rates based on how we spend our money. It is often the case that the older you are, the higher your personal inflation, taking into account things such as health care and heating costs.

So, what can we do?

Let’s look at cash first. The rates will be very low for a while and so your savings will lose value, but you will need immediate access to short term emergency funds.

So try to get the best possible rate. When it comes to stocks, there are sectors and companies that can often keep up with inflation. These are companies that can pass their costs on to their users – often us!

So utilities can do this, but governments will intervene with price caps, as we’ve seen with energy suppliers in the UK. Fashionable technology stocks may suffer as rising interest rates to fight inflation mean that future profits built into their stock prices are worth less today. Value stocks, which have lost popularity in recent years, can be seen as a safe haven. These can be property and defense stocks.

In general, avoid fixed income and government bonds unless they are indexed and linked to inflation.

Real estate should normally be able to keep pace with inflation at reasonable levels and rents will adjust accordingly. This is mainly reflected in the current demand for warehousing from e-commerce.

For other assets, some will turn to gold as a safer haven and it will most likely hold its value, but remember that no commodity will give you any income.

What must we do?

Whether you manage your own portfolio or use funds and investment managers, check their policies and what they plan to do about the inflationary effects on your hard-earned money.

Remember, it’s your money, not theirs, and they should act accordingly.

Justin Urquhart Stewart co-founded fund manager 7IM and is president of investment platform Regionally.