Financial Planning Strategies to Protect Your Investments and Savings from Inflation

Inflation is a pressing concern for everyone. It erodes the purchasing power of money over time, putting your financial security at risk. With the cost of living rising, there has never been a better time to implement effective financial planning strategies to protect your investments and savings from inflation. 

In this article, we’ll be exploring key approaches to help you safeguard your savings and investments from inflation while ensuring long-term financial stability.

Understanding inflation and its impact

Inflation is the rate at which the general levels of prices for goods and services rise over time. This leads to a decrease in the purchasing power of money. In other words, as inflation increases, the amount you can buy decreases. Inflation is typically measured by looking at price indices, such as the Consumer Price Index (CPI) or the Retail Price Index (RPI).

According to Statista, the UK inflation rate was 2.2% in July 2024, up from 2.0% the previous month. In 2022, the UK inflation rate surged to an all-time high of 11.1%, its highest rate in over 40 years. This increase meant that £100 had the same purchasing power as £89 from the previous year. This illustrates the stark effects inflation can have on everyday finances.

Strategies to protect your savings and investments from inflation

Account for emergency funds
A good rule of thumb when considering cost of living management is to have an emergency fund. This fund should be able to cover your essential expenses, such as your mortgage or rent, energy bills, food and travel costs for at least 3 months. That way should the unexpected happen, you won’t be struggling to make ends meet.

Consider diversifying your assets
One effective way to protect your investment and savings portfolio from inflation is through diversification and strategic asset allocation. By spreading your investments across various asset classes, you can mitigate risk and take advantage of several different inflation-resistant opportunities. Key asset classes include:
• Equities (i.e. stocks)
• Commodities (i.e. silver and gold)
• Property

Talking to a professional, experienced financial adviser like our team at NGC Wealth Management can help you create a balanced investment portfolio based on your risk tolerance and long-term savings objectives.

Focus on real vs nominal returns
When it comes to financial planning and protecting investments from inflation, it's crucial to differentiate between nominal returns and real returns. A popular inflation-protected investment in the UK is Index-linked Gilts (ILGs). ILGs are government bonds that adjust their value in line with the RPI. This means your returns maintain purchasing power.

Find the highest interest rates you can
These days switching savings accounts or ISAs is relatively easy. Looking for the highest interest rates will give you a chance against inflation. To get high interest rates, you may need to commit to a product for a year or more, especially with ISAs. Use comparison websites to compare different ISAs and get the best offer.

Think about long-term investments
Stocks and Shares ISAs are great if you have money you don’t plan on touching for at least five years. They are seen as a mid to long-term investment but be aware that your investment will be subject to market volatility.

There are plenty of options out there and it can be overwhelming. Speak to us about your unique situations and goals for tailored advice.