inflation proofing investments

dboswell

in an inflationary environment i have read that gold, property and index linked savings tend to do best. its a mixed picture with shares (depending on sector) and savings do relatively worse.

is this generally correct?

Reaper

Sounds roughly right to me. You can extend gold and property to include almost anything physical - oil, fine wines etc. There is no particular reason for them to up go in real terms just because of inflation, bu they shouldn't go down either. If lots of people do the same thing (eg everyone piles into gold for protection from inflation) they may well go up in value due to supply and demand.

Savings accounts depend on interest rates. The normal way of controling inflation is to increase interest rates so savers are not necessarily worse off. My worry is the economy may not have recovered when inflation returns meaning the scope to put up interest rates would be limited. However it is much too soon to know whether my fears are justified.

Yes shares are a mixed bag, though overall they should not be affected much. As long as the company feels able to put up the price they sell stuff to match their rising costs then they will be ok.

gozomark

depends whether its expected or unexpected inflation, and whether "normal" inflation - 2-5% pa range, high inflation or hyperinflation

how much inflation do you expect/fear ?

dunstonh

shares tend to do well during periods of inflation. That is why were saw returns well into double digits on average for even basic low quality investments in the 70s and 80s (and why endowments always used to hit target as they relied, priced and were set up for a boom/bust economy).

However, as above comments point it, it depends on the type of inflation.

There are increasing fears that inflation is going to bounce and there are an increasing number of financial commentators making such comments. I even read a compliance bulleting last week that warned us that advisers should really go almost over the top on making sure indexation is discussed on income products as there are fears of double digit inflation at some point ahead as suggestions of a devaluation perhaps being the lesser of many alternative evils given the debt burden.

Jonbvn

dunstonh wrote: »

I even read a compliance bulleting last week that warned us that advisers should really go almost over the top on making sure indexation is discussed on income products as there are fears of double digit inflation at some point ahead as suggestions of a devaluation perhaps being the lesser of many alternative evils given the debt burden.

Are we talking about a good old fashioned run on the pound here?

theGrinch

Borrowers tend to do well with inflation and the biggest borrower is of course HM Government. Dare I say, engineering some "benign" inflation may significantly reduce the debt burden? Governments have history of this behaviour.

79% of GDP on the Chancellor's own forecast is nothing short of shocking. Many expect it to be considerably higher. If there is no appetite for hundreds of billions of gilts, then QE is a real possibility - or as the old fashion types say, printing money.

While I dont expect people to be using wheelbarrows stuffed with cash to paid for an egg, I would not be surprised if we saw double digit inflation return. History tends to go round in 360 cycles and repeat itself. Think 1970s....economic crisis, spiralling borrowing, higher tax rates, inflationary pressures. Geoffrey Howe's 1981 deflationary budget was the start of trying to get a grip of it all.

The key now is seeing what happens to wages once the recovery is underway. If these can be controlled then inflation will not take a grip otherwise, its a real possibility.

barny_100

Thought I'd revive this rather than start a new thread.

Just read this http://burningourmoney.blogspot.com/2009/05/get-ready-for-inflation-tax.html and I thought I'd cast out for opinions.

I've got my regular investing going now across a decent (IMO) range of funds but have £1000 to invest. Now if inflation is going to be an issue it would be better to get it invested in Index-Linked Gilts now to be ahead of the curve.

Alternatively, and although I have an emerging markets fund as part of my monthly investing, I've been looking at China or India centric funds, as being in my 20's I'm happy to let the investment play out and fully expect growth in those 2 countries to outstrip other areas on the whole and in this context, UK inflation.

So to combat inflations effects on my £1000 do people like Index-Linking or equities with high-growth (Or high loss ) possibilities?

barny_100

*tumbleweed*



I'll reply in case anyone else is interested... Made my decision and have bought £1000 of "Royal London Index-Linked Gilt Trust Income" in my ISA at H&L.

Looked into an iShares ETF "INXG" but for that amount the lower management costs don't make up for the trading fee. The other Index-Linked Gilt funds available at H&L either have higher AMC's or have a 0.5% surcharge (For being trackers I think?) and all are pretty much like-for-like in performance.

If inflation really becomes a talking point issue I'll drop my monthly Corporate Bond £50 investment and move that into this fund as well...seeing as fixed-interest investments are likely to suffer if the big fear is inflation above 4-5% I would have thought?

DiggerUK

dboswell,
The gold argument, both for and against, is covered in a thread started by mikeorange7, in December 2004 called "Buying in to gold"

Somebody recently bumped it back into the daylight. It's a good read, and been added to over the years.

It's on page three at the moment, as mo7 doesn't seem to be about it is being treated as an abandoned claim for now.

Give it the once over, I'm long and large in gold myself so I'll declare my interest.

Good fortune.

wombat42_2

Some tasty rises on Gold stocks today of about 5% - seems like investors are piling in already because of the inflation scare down the road.