A number of investors tend to be concerned about the impact inflation may have on their ability to reach their financial goals. As per Kavan Choksi UAE, while it might not always be possible to completely avoid the effects of inflation, there certainly are ways to reduce its sting without making major changes to the portfolio. Adding specific asset classes, like commodities, to a well-diversified portfolio of bonds and stocks, for instance, can help buffer against inflation.
Kavan Choksi UAE sheds light on a few ways to protect wealth against inflation
Even though rising inflation can trouble investors, they will have some degree of protection already in place, if they maintain a well-diversified portfolio of traditional stocks and bonds. Well-diversified portfolios historically tend to grow even during phases of high inflation. A good mix of bonds and stocks would allow investors to experience growth while also effectively managing risks. Investors should also consider focusing on investments that have historically done well in inflationary environments. Adding diversified commodities, like agricultural products, precious metals, industrial metals, and international stocks, to the portfolio would be a good idea.
High-yield bonds can particularly prove to be valuable during phases of inflation. Even though these bonds carry higher risk in comparison to investment-grade debt, their higher yield shall allow them to withstand any increases in interest rates that might occur in response to rising inflation pretty easily. Short term bonds generally experience less volatility during phases of high inflation. Investors may consider including a certain degree of exposure to intermediate and long-term bonds in their portfolio. Historically such bonds have provided stability within well-diversified portfolios during times of stock market volatility.
When the market is volatile, it can be tempting to reallocate some assets into a cash position. However, holding cash in an inflationary environment can be counterproductive. While it may seem safe as one’s account balance stays stable, the longer the money sits there, the lower one’s purchasing power may get. Taking funds out of the market can have a huge impact on the long-term performance of one’s portfolio. In the opinion of Kavan Choksi UAE, investors who can take on even a bit of risk are likely to be in a better position to keep up with, if not pass, the rate of inflation.
There, however, are many investors who would want to keep more cash on hand as emergency savings in order to account for the rising cost of living that comes with inflation. Even though it may not be prudent to leave a lot of investible assets in cash, it is still vital to be prepared for any short-term liquidity needs. When prices in the market are on the rise, one should add to their emergency savings. This shall help cover the costs of an unexpected expense should one arise. Ideally, setting aside enough money to cover 3 to 6 months’ worth of essential expenses would be enough.
There is no one-size-fits-all answer for protecting wealth against inflation. The ideal course of action for one to follow would rely on their level of wealth, and stage of life.
