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MR MONEY MAKER: Inflation is back, but you can shield nest egg

How to protect your portfolio

Inflation erodes the value of your investments. So at present, if you are not getting at least 4.2 per cent, which is the current rate, after all your costs and charges on your investments, you are losing value in real terms. 

If you are still sitting on a cash pile for your long-term safety fund, then its value is being kiboshed. 

This is very serious and something close to my heart. 

On the rise: If you are not getting at least 4.2 per cent after all your costs and charges on your investments, you are losing value in real terms

I saw my father's fixed pension and fixed income assets dissolved in just a few years by rapid inflation, caused mostly through irresponsible and ignorant politicians. 

Do not let this happen to your family! 

Inflation proofing 

After the inflation-ridden 1970s, I am pleased to say that there are more things that we can do to protect our wealth, but please do not leave it to your investment funds, products, or even advisers to do on their own.

Instead check to see what can be done. Essentially you will need your assets to rise at or above the rate of inflation. 

The headline rate, as I said, is 4.2 per cent but we each have our own inflation levels based on how we spend our money. Often the older you are, the higher your personal inflation rate with items such as health care and heating bills to be considered. 

So what can we do? 

Firstly let's look at cash. Rates are going to be very low for some time and so your savings will lose value but you will need ready access to short-term emergency funds. 

So try to get the best rate you can. As far as shares are concerned, there are sectors and companies that can often keep up with inflation. These are businesses that can pass on their costs to their users – often us! 

So utility companies can do this, but governments will intervene with price caps, as we have seen with energy suppliers in the UK. 

The fashionable tech stocks may suffer because rising interest rates to combat inflation means future profits built into their share prices are worth less today. Value stocks, which have in recent years lost popularity, may be seen as a safe haven. This could include property and defence stocks. 

Please, in general, avoid fixed interest bond and gilts unless they are index-linked and tied to the inflation rate. 

Property should usually be able to rise with inflation at reasonable levels and rents will adjust accordingly. We may especially see this in the current demand for warehousing from ecommerce. 

For other assets some will turn to gold as a safer haven and it will quite likely retain its value but remember that with any commodity you will not receive any income.

What should we do? 

Whether you run your own portfolio or use funds and investment managers, check what their policy is and what they plan to do about the inflationary effects on your hard earned money. 

Remember: it is your money, not theirs, and they should be acting accordingly. 

Justin Urquhart Stewart co-founded fund manager 7IM and is chairman of investment platform Regionally.