In May, the Office for National Statistics released figures that revealed that inflation in the UK stood at 8.7% in April. On the face of it, this is a positive: it’s the first time this measure has been in single figures since August 2022.
However, the figure is declining at a lower rate than in the US and across much of Europe. What’s more, Chancellor Jeremy Hunt has said that there is no choice but to raise interest rates further to bring inflation down.
Periods of high inflation can have a significant impact on the real value of your money – especially when the interest rates offered by savings accounts are currently so low. For this reason, some may be looking to invest instead – here’s what the experts recommend.
While some asset classes have the potential to fluctuate wildly during times of market uncertainty, others tend to perform better. However, nothing is guaranteed, and some assets that you believed were safe may still underperform.
For this reason, many experts suggest that a diversified portfolio can help you weather an inflationary storm.
2. Think long-term
It’s understandable that some investors will panic when they see the value of their investments falling as a result of high inflation. However, is panic-selling the best idea?
Financial advisors will generally recommend that you invest for at least five years. Seeing how your investments have performed over the longer term in the past – including over times of high inflation – could potentially give you an indication of how they may perform when inflation comes down.
3. Pound-cost averaging
Financial markets go up and down: this is totally normal. One approach favoured by some is pound-cost averaging: drip-feeding your money into investments over weeks, months or years in a bid to smooth out the market’s peaks and troughs.
The idea is that rather than investing a lump sum and risking missing out on buying cheaper shares if the market falls, you could potentially buy shares at a lower price and capitalise on a bigger return.
Pound-cost averaging, like anything else, has no guarantees. While exiting certain markets might be right for some investors during times of high inflation, others may be better off changing the makeup of their portfolios – while some may be better simply doing nothing and riding the wave.
“It feels that this year has served up the toughest investing environment in recent times”, said David Henry, investment manager at Quilter Cheviot, in late 2022. “Investors have to remember, however, that corrections and resets are a necessary part of being an investor. Stocks do not just go straight up.”
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