Fighting Inflation with a Disciplined Investment Approach

Inflation, the gradual increase in prices over time, erodes purchasing power and can significantly impact long-term financial goals. As the cost of living rises, it’s crucial to adopt a disciplined investment approach to protect and grow your wealth. Here’s how a structured strategy can help you stay ahead of inflation.

Understanding inflation

Inflation measures the rate at which the general level of prices for goods and services rises, subsequently decreasing the purchasing power of money. Central banks, like the Federal Reserve in the United States or Bank of England in the UK, often aim for an inflation rate of around 2% per year. However, inflation can sometimes spike due to various factors, such as supply chain disruptions, increased demand, or monetary policies, exactly what happened after the Covid-19 outbreak.

The impact of inflation on investments

Inflation affects different asset classes in varying ways:

• Cash and fixed income investments: Savings accounts and bonds/sukuks can suffer because the income earned may not keep up with inflation, leading to a real loss in purchasing power.

• Equities: Stocks can potentially offer higher returns that outpace inflation, but they come with higher volatility.

• Real assets: Real estate, commodities, and other tangible assets often appreciate with inflation, serving as a hedge.

Developing a disciplined investment approach

• Diversification: Diversification is crucial in managing inflation risk. By spreading investments across various asset classes-stocks, bonds, real estate, and commodities-you can mitigate the impact of inflation on your portfolio. Different assets respond differently to inflationary pressures, balancing overall portfolio risk.

• Equity investments: Equities tend to offer higher returns compared to other asset classes, which can help outpace inflation. Consider investing in companies with strong pricing power, as they can pass increased costs onto consumers. Additionally, focusing on sectors that benefit from inflation, such as energy and consumer staples, can provide a buffer.

• Real assets: Investing in real assets like real estate and commodities can be an effective hedge against inflation. Real estate values and rental incomes tend to rise with inflation. Commodities, such as gold and silver, often appreciate as inflation increases, preserving purchasing power.

• Focus on quality and value: Investing in high-quality companies with strong balance sheets and consistent earnings can provide stability during inflationary periods. Additionally, value investing—buying undervalued stocks—can offer a margin of safety and potential for outperformance during volatile markets.

• Regular rebalancing: A disciplined investment approach involves regularly rebalancing your portfolio to maintain your desired asset allocation. This helps you stay aligned with your risk tolerance and investment goals, ensuring that no single asset class becomes disproportionately large.

• Stay informed and adaptable: Keeping abreast of economic indicators and market trends allows you to make informed investment decisions. Being adaptable and ready to adjust your strategy in response to changing inflationary environments is key to long-term success.

The importance of patience and long-term perspective

Inflation can be unpredictable and challenging to navigate. However, a disciplined investment approach, grounded in a long-term perspective, can help mitigate its impact. Patience is essential, as market volatility and short-term fluctuations are inevitable. Staying focused on your long-term goals and maintaining discipline through market cycles will enable you to build and preserve wealth despite inflationary pressures.

In summary….

Fighting inflation requires a strategic and disciplined investment approach. By diversifying your portfolio, focusing on equities, investing in real assets, regularly rebalancing, and staying informed, you can protect your investments from the eroding effects of inflation. Adopting this approach not only helps in preserving purchasing power but also positions you to achieve your long-term financial objectives. Remember, the key to success lies in patience, discipline, and a long-term perspective.

To learn more about how we can help you and about our investment approach, book a free initial consultation with one of our Financial Advisers.


This article is for information only. Please do not act based on anything you might read in this article. Past performance is not a reliable indicator of current or future returns. This article contains general information only and does not consider individual objectives, taxation position or financial needs. Nor does this constitute a recommendation of the suitability of any investment strategy for a particular investor. It is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any trading strategy to any person in any jurisdiction in which such an offer or solicitation is not authorised or to any person to whom it would be unlawful to market such an offer or solicitation.