Inflation is thus a crucial factor to consider when making any decisions about your money. By understanding how it works and its potential impact on your finances, you can make more informed choices about how to protect and grow your wealth over time.
Years of very low and steady inflation
After years of very low and steady inflation, prices are currently moving higher rapidly. In the UK, this is most obvious in the rising cost of energy, fuel and food. And it doesn’t look like inflationary pressures will ease any time soon because of the crisis in Ukraine.
Oil and gas prices are likely to remain higher for much longer as sanctions against Russia, one of the world’s largest oil and gas exporters, take effect. Food prices are likely to continue to rise too because Russia and Ukraine are big grain suppliers.
More opportunity to grow in value
For savers, or those in retirement, it’s important to manage savings to help mitigate the impact of inflation. To do this, your money needs to grow in value. Which is where investments can be so valuable as they give your money more opportunity to grow in value over the longer term than cash savings, and importantly to keep pace with, or even beat inflation.
Another way to protect your portfolio from inflation is to invest in assets that generate income. For example, bonds and dividend-paying stocks can provide you with a steady stream of income that can help offset the effects of inflation.
Take advantage of inflationary trends
Finally, you can also take advantage of inflationary trends by investing in assets that are likely to benefit from rising prices. For example, commodities like oil and gas as we have seen over recent months tend to do well when inflation is on the rise.
No matter what strategy you use, it’s important to stay diversified and to monitor your investment portfolio closely. By doing so, you’ll be better positioned to weather any potential storms that may arise due to inflation.