Shelter Your Investment from Inflation

Most of us who commute daily for work or for other purposes must have noticed how the fuel prices have gone up substantially and that now you shell out more for commuting the same distance. More or less, you are seeing this in every other expenditure, including your grocery bills. All this is a result of a surge in inflation. This is an experience by almost everyone across geographies. Most of this has been attributed to the opening up of the economy once again after the lockdown with an increasing number of people demanding the same set of goods or services, thereby leading to a rise in prices.

For the everyday consumer it is hitting big on their wallet. But, it is likely to be a bigger hit for those who invest as they may lose value in the market, which can jeopardise many of their financial goals. Historically we have seen that different levels of inflation at various levels of economic cycles impact different assets in a different way. There is a complex relationship between inflation and returns from equities. So, a modest dose of inflation after a deflationary scenario is good for the economy and asset prices, including equities.

Nonetheless, if it goes beyond a certain limit, it may help some sectors but will hurt others. For many, the current inflation is transitory in nature; however, predicting the future path of inflation is extremely difficult. Hence, the best protection against future uncertainty with regard to inflation is to have a well-constructed portfolio that is designed to meet your risk tolerance and fulfil your financial goals. Holding a well-diversified portfolio between asset classes and within an asset class will guard your portfolio against inflation and help you to achieve your goals.

SHASHIKANT