I’m worried my nest-egg is falling behind inflation
the years I have amassed a fairly substantial investment portfolio, which I hope will support me through my retirement years. However, the current economic climate makes me increasingly concerned about whether my savings and investments are actually making me money. Could you advise me as to how I can ensure my savings and investments keep pace with inflation?
CH, Edinburgh protection against loss in value. Typically, they could be used as a component part of a welldiversified portfolio.
Real assets such as commodities and property can also offer a hedge against inflation.
These should be seen as longer-term investments only and as they tend not to move in synchronicity with inflation, they provide long-term protection only.
Historically, equity investments will offer returns ahead of inflation in the longer term. The investment term is crucial to achieving the average investment returns that will exceed the average rate of inflation over the same period.
A possible strategy may be to invest in stocks or funds that produce a high dividend yield. Dividend income can often be higher than the current rate of inflation, but in the long term this does nothing to protect the capital against inflationary effects.
The inflationary effect has hit pensioners particularly hard as their income becomes fixed and the majority of this income is spent on essential goods and services that have experienced huge price inflation, such as utilities and food.
There are products available that will provide inflationproofing.
Index-linked or escalating annuities increase either by a fixed amount or by the rate of inflation. Escalating annuities will provide the annuitant with a lower starting income when compared with their conventional counterpart – sometimes as much as a third lower.
As with any such products independent financial advice must be sought.