Inflation Protection Strategy

What is an Inflation Protection Investment Strategy

Inflation protection investments are financial assets that aim to preserve or increase an investor’s purchasing power in the face of rising inflation. Inflation erodes the value of money over time, reducing the real returns on investments and potentially jeopardizing an investor’s long-term financial goals. Incorporating inflation protection investments into a portfolio can help shield investors from the adverse effects of inflation.

 

 

These are examples of the assets Baggot includes in an Inflation Protection Investment Strategy

 

Inflation-linked bonds

Inflation-linked bonds, such as Treasury Inflation-Protected Securities (TIPS) in the United States, are government-issued bonds that adjust their principal and interest payments based on changes in inflation. The principal value of these bonds increases with inflation, while the interest rate remains fixed. As a result, the interest payments, which are calculated as a percentage of the adjusted principal, also rise with inflation. Inflation-linked bonds provide a direct hedge against inflation and can help preserve the purchasing power of an investor’s bond portfolio.

 

Real estate investment trusts (REITs)

REITs are companies that own, operate, or finance income-producing real estate properties. They are required to distribute a significant portion of their income to shareholders in the form of dividends, making them attractive for income-seeking investors. Real estate investments can provide inflation protection because property values and rental income often rise in tandem with inflation, enabling REITs to pass on increased income to their shareholders.

 

Dividend-paying stocks

Dividend-paying stocks, particularly those with a history of consistent dividend growth, can offer some degree of inflation protection. Companies that can increase their revenues and profits during periods of inflation are often able to raise their dividend payments, helping to offset the impact of rising prices on an investor’s income stream. Dividend-paying stocks also offer the potential for capital appreciation, providing an additional source of return that may outpace inflation over time.

 

Commodities

Commodities, such as gold, silver, or agricultural products, have historically exhibited a positive correlation with inflation. Commodity prices often rise during periods of increased inflation, as the cost of producing and transporting goods increases. Investors can gain exposure to commodities through various investment vehicles, such as commodity futures, ETFs, or individual stocks of companies involved in commodity production.

Inflation protection investments help preserve an investor’s purchasing power by generating returns that keep pace with or outpace inflation, mitigating the negative effects of rising prices on investment returns.

Arrange a Free Investment Review with Peter Brown

If you would like to explore the opportunities available to you by investing with Baggot Investment Partners you can avail of a free financial review with Peter Brown. This is a “No Obligation” review of your existing investments and pension arrangements to establish if there are any untapped opportunities that could improve your financial position.

 

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