Protect against inflation: Invest in growth assets
But weighing up the risk and return of various asset classes is challenging.
The value of tangible assets generally rises along with inflation but these assets are more volatile and may
not be suitable for all investors.
Gold
- Historically recognised as store of value
- Gold may have its place in a diversified portfolio but does not always move in line with inflation over longer periods
Protect against inflation: Invest in growth assets
But weighing up the risk and return of various asset classes is challenging.
The value of tangible assets generally rises along with inflation but are more volatile and may
not be suitable for all investors.
Oil
- Buy oil to hedge against rising pump prices?
- But oil price can be volatile – between Jun 08 to Feb 09 it fell almost 50%!
Protect against inflation: Invest in growth assets
But weighing up the risk and return of various asset classes is challenging.
The value of tangible assets generally rises along with inflation but are more volatile and may
not be suitable for all investors.
Real estate
- Rental yields generally rise along with inflation
- However investing in real estate requires a large sum of capital and the investment is not easily liquidated, especially during difficult market conditions
Protect against inflation: Invest in growth assets
But weighing up the risk and return of various asset classes is challenging.
Financial assets have a mixed relationship with inflation. Inflationary environment is generally not favourable for income producing assets (bonds) but tends to favour growth assets (stocks).
Bonds
- Bonds generally do not perform well when inflation expectations are high
- This is because investors demand higher yields to compensate for the expected increase in prices
- As such, the value of bonds drop (i.e. capital losses) as bond yields increase
- While Inflation-linked Bonds are designed to keep pace with inflation, they may not be suitable for investors with assets based in Singapore only
Protect against inflation: Invest in growth assets
But weighing up the risk and return of various asset classes is challenging.
Financial assets have a mixed relationship with inflation. Inflationary environment is generally not favourable for income producing assets (bonds) but tends to favour growth assets (stocks).
Stocks
- Investing in stocks can protect purchasing power
- In particular, value of companies that own real, tangible assets increase with rising prices
- Investing in companies with real assets is less risky than direct investments in tangible assets and could be a safer hedge against inflation
