Ask An Adviser - How Can I Safeguard Savings From Inflation?

Top answer provided by:

Eden Smith

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Hi Amara,

Navigating the financial landscape and mitigating the effects of inflation on your cash savings is a prudent pursuit. Here are a few ways you can preserve your purchasing power in a manner that is both informed and strategic.

1. Allocation into Diverse Financial Instruments

Deploying a portion of cash into short-term fixed income instruments, such as Treasury bills, certificates of deposit (CDs), or short-term bonds, can potentially provide a counterbalance to the impact of inflation. These instruments typically offer yields that outpace the rate of inflation, safeguarding your real returns.

2. Strategic Employment of High-Yield Savings Accounts

Opt for high-yield savings accounts that offer interest rates surpassing those of standard savings accounts. This ensures that your cash holdings generate returns that counteract the erosive effects of inflation over time.

3. Consider Inflation-Indexed Bonds

Consider incorporating inflation-indexed bonds, like Treasury Inflation-Protected Securities (TIPS), into your investment portfolio. These bonds automatically adjust with inflation, providing a safeguard for the purchasing power of your principal investment.

4. Diversification of Investments

Implement a well-rounded investment strategy by diversifying your portfolio across various asset classes, including stocks, bonds, real estate, and commodities. Diversification enables you to mitigate the risks associated with inflation and capitalise on potential returns that surpass its impact.

5. Regular Review and Portfolio Rebalancing

Adopt a disciplined approach to review your investment portfolio at regular intervals. In light of evolving economic conditions and changing inflation rates, make necessary adjustments to maintain an optimal asset allocation and safeguard your purchasing power.

6. Utilise Dividend-Paying Stocks

Dividend-paying stocks can be an attractive option during times of inflation. Companies that consistently pay dividends often increase their payouts, providing you with a steady income stream that can counter the effects of rising prices.

7. Save and Invest Wisely

In addition to investing, ensure you maintain a disciplined savings plan. Save a portion of your income regularly and invest it strategically to grow your wealth over time. Reinvesting gains and compounding growth can significantly contribute to safeguarding your purchasing power.

Hope this helps.

Eden Smith

Financial Adviser

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