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18 January 2023 12h00
Source: Banco Carregosa

6 tips for dealing with inflation

6 tips for dealing with inflation

 

 

Find out how to avoid losing purchasing power and protect your assets from inflation with these 6 tips.

 

Inflation is like an invisible hand that takes away purchasing power and weakens investments. Now that there are historic double-digit hikes, it is more difficult to guarantee positive real returns. Find out how to deal with inflation and protect your assets with these 6 practical tips. 

 


6 tips to protect your assets from inflation

 

In a highly volatile environment like the one we live in today, the main goal is to ensure that the return you get from your investment portfolio is higher than the rate of inflation. Here are ways to do this. 

 

1. Look beyond term deposits 

 

If you want your savings to increase, invest them rather than keep them. Although term deposits are very popular among Portuguese families, they only preserve assets and do not increase their value. For most of 2022, the average rate on term deposits did not reach 0.1%. As inflation at the end of the year was almost 100 times that value, this means a real devaluation of assets.

 

At this time of rising inflation, investments in term deposits, namely through the offer of Banco Carregosa with very competitive rates compared to most banks, should be complemented with a strategy to appreciate wealth in order to avoid the erosion of income due to high inflation. 

  

2. Define your risk profile

 

This is the time to define your risk profile. Before making investment decisions in times of inflation, it is important to determine your risk tolerance to choose the best type of financial products in which to invest. Investments vary widely in their complexity, profitability and risk.

 

If you have a conservative profile, with little tolerance for capital and liquidity risks, investments with guaranteed capital and lower returns may be the most appropriate. If you are willing to take more risk, you might consider investments with higher expectation of returns and a longer time horizon. These expectations should guide subsequent investment decisions.

 

3. Invest in sectors that respond better to inflation

 

Some sectors usually respond better to rising inflation rates, in that they operate in areas regarded as essential. For example, food businesses and the energy sector are less affected. 

 

The same is true for the Health sector, which is growing increasingly faster than the overall global economy. However, the health sector is broad and incorporates biotechnical companies, medical device companies, insurance companies and healthcare service providers, which can provide a good hedge against inflation. 

 

Real estate also offers a source of income in these contexts, and with various forms of investment. You can buy a property directly, which involves a high cost, or invest in a real estate investment trust, or REITs/SOCIMI/SIGI. REITs are companies that own and manage income-producing properties. They are publicly traded and available on the stock market. They have an excellent track record of resisting inflationary pressure and between 1973 and 2020 outperformed inflation by more than 60%.

 

4. Be aware of the investment history

 

To keep your investments protected from inflation, it is important to look closely at the rates of return achieved in recent years. Although the past is no guarantee of future returns, if the reported rates are above the inflation rate, your wealth is more likely to be protected.

 

Therefore, opt for financial products with interest rates higher than the inflation rate, as this is the only way to truly monetise your savings and not just preserve your purchasing power. Bonds, Share, ETFs and Investment Funds may be more attractive options. 

 

5. Diversify your investments

 

Diversifying your investment is always important, but when inflation rises it becomes even more critical. Diversifying your investment is a way to mitigate risk as a possible capital loss on one asset can be easily diluted into an overall positive balance. 

 

So, if you spread your wealth over several types of unrelated assets, you will achieve a more balanced and stable investment portfolio with higher total return potential. Therefore, expose your capital to different asset classes, sectors, geographies and maturities. 

 

6. Invest for the long term to cushion inflation 

 

Knowing how to wait is a virtue, and even more so in the world of investments. The highest returns are associated with longer maturities, as this type of investment allows your assets to grow in a continuous and balanced way over time. 

 

So the longer the investment period, the greater the return you can get because you can reduce the impact of any falls in share prices. So it is a way of mitigating the effects of inflation.

 


Banco Carregosa, protecting your assets since 1833

 

When investing at this stage, it is particularly important to have the support of experts to guide your investments. It is essential to rely in professional and personalised support to prudently manage exposures and minimise risks. Banco Carregosa has seen several crises since it was founded, so our team is ready to face the most difficult times with prudence and resilience. Contact us and benefit from a personalised and experienced advice to deal with inflation.