I’m wor­ried my nest-egg is fall­ing be­hind in­fla­tion

The Scotsman - - Farming - ChriS­tian PoziemSki

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.

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