Inflation - taking any action?

jim8888

Having just listened to the latest MoneyWeek doom-laden podcast,  where the inflation theme was "We are retuning to the Seventies" and nobody, from fund managers to central bankers, has the first clue what to do about it. I wondered what the retired, or close to retired, community think about this? Is inflation a big danger to your health and wealth? The important point was made in the podcast that not all pensioners are equal - rampant inflation is an obvious nightmare for people relying totally on the state pension as governments renege on commitments to keep that rising in line. Groceries, petrol and heating all shooting up could cause a real crisis for many. But how will inflation affect more affluent pensioners living on their investments? Is anyone taking any action yet in changing their investments to defend against sustained inflation? 

Audaxer

I'm not planning on changing any investments. I did change some value funds for growth towards the end of last year, but glad I stuck with a lot of equity income funds and ITs, as they have performed better than growth recently. I'm not sure if they will continue to perform better in future, but I think the regular growing dividends from the ITs provide some comfort if inflation keeps rising. I also hold a couple of multi asset funds which I don't intend to change.

bostonerimus

I'll just "tighten my belt". I was dreading my January gas bill, but it came in at $105 which is well below the average for my area in New England. I got a smiley face on my bill for being below average, but encouragement to do better "like your efficient neighbors". My home insurance went up because I had to increase the replacement value of my home from $650k to $850k due to house price and construction cost increases. Because it has a rental unit I also have extra liabilities insured so my annual bill went from $1400 to $1800 which I think is way more expensive than in the UK. If I look at just my 3 bed home, annual home owners insurance is now $1200 or around 900 GBP.

[Deleted User]

I changed my fixed income investments a year ago to move away from long duration bonds and replace a portion with inflation protected investments. 

My guess is that its too late to do anything now as everyone has already accepted the reality  of inflation risks including Central Banks.  

If podcasts  are predicting  70s - style inflation, it’s probably time to get rid of inflation protected instruments.  But… I could be wrong so just stay diversified. 

QrizB

Deleted_User said:

If podcasts  are predicting  70s - style inflation, it’s probably time to get rid of inflation protected instruments.  But… I could be wrong so just stay diversified.

Although it might just be time to change your podcasts, instead.

Thrugelmir

 jim8888 said:

 The important point was made in the podcast that not all pensioners are equal - rampant inflation is an obvious nightmare for people relying totally on the state pension as governments renege on commitments to keep that rising in line.

There's a good explanation for last years decision. 

cfw1994

Tightening of belts should the 70s levels of rampant inflation be true…

I’d suggest finding more relaxing podcasts first, mind: I’m not convinced the world of 2022 is the same as the early 70s.  Time will tell, & maybe I will have a paupers grave figuring in my future 😱

JohnWinder

Is anyone taking any action yet in changing their investments to defend against sustained inflation? 

The annual UK inflation rate has been positive for more than 30 years, so we're familiar with sustained inflation. The time to act was 30 years ago, if not before, surely.

MK62

jim8888 said:

The important point was made in the podcast that not all pensioners are equal - rampant inflation is an obvious nightmare for people relying totally on the state pension as governments renege on commitments to keep that rising in line.

The commitment "reneged on" was the part of the triple lock linked to wage growth...the link to inflation is still in place.

The mechanism for that is working as designed.......the current issue is that inflation has jumped quite a bit since the Sept annual inflation figure, which rises in state pension, for the following April, are based on. In light of this, there's a good argument for redesigning the inflation lock part of the state pension locking mechanism to more accurately reflect the inflation pensioners are currently seeing......and in reality, there's also a good argument for also redesigning the inflation figure the rises are based on. CPI may be the official headline rate for international comparisons etc, but it doesn't really reflect the actual inflation that many pensioners are actually seeing in real life. It all quickly becomes a political hot potato though, so the issue becomes drowned out by politicians trying to score points off each other......like MP's pay, perhaps it's about time that increases to the state pension are decided by an independent body like IPSA.......or perhaps the triple lock should become the quadruple lock, where a link to MP's pay and expenses is also included... .

As for doing anything about inflation at the moment, I'm not, at least for now - perhaps the current rate is transitory as has been claimed......so I'll wait and watch, and consider what, if anything, I can actually do, realistically.

Linton

Surely a major requirement for almost any investment portfolio is to protect against inflation. Well diversified equities or most other assets except for cash and fixed interest should do that over the long term. Provided you have sufficient fixed income and low risk non inflation linked savings or investments to cover historically normal levels of inflation, say up to 10%/year for a few years, there should not be a problem. Ensuring you do should be part of your financial planning.

If you don’t, you have no choice but to tighten your belt. There is nothing else you can do to cover inflation in the short term.

steampowered

There is one big difference between now and the 70s.

In the 70s, pensioners were considered poor.

Today, pensioners are a rich group. The average pensioner now has more disposable income than the average person of working age. Most people in their seventies were able to ride the housing and asset price boom, so actually did very well out of inflation.