Imagine seeking a shield against inflation, hoping for reliability, and ease of use in your investment. Passive investors find themselves in a dilemma following the turmoil faced by short-duration index-linked bond funds after the post-Covid Consumer Price Index escalation.
This article embarks on a journey to explore various other potential inflation-hedging solutions and their performances during inflationary spikes. The charts provide a vivid comparison of different assets’ responses to rising prices.
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Inflation vs Money Market Funds:
- Cash miserably fell short against inflation.
- Money market funds, with a mere 3.5% annualised return, failed to outpace inflation at 5.9%. History reveals their inconsistency in providing an effective inflationary shield.
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Inflation vs Gold:
- Gold shone brightly, outperforming other assets as the best performer, with a 15.9% annualised return.
- While gold is seen as an inflation hedge, its unpredictable response to inflation raises questions about its future reliability.
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Inflation vs Commodities:
- Commodities achieved parity with inflation, indicating their potential as a hedge against rising prices.
- Despite volatility, commodities have historically outperformed other assets during inflationary periods, making them a viable option for investors seeking to counter inflation.
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Inflation vs World Equities:
- World equities demonstrated resilience, with an annualised return of 10.8% outperforming inflation.
- Equities’ ability to bounce back quickly after inflation spikes suggests focusing on long-term gains rather than hedging against rising prices.
- Inflation vs All-Comers:
- Gold emerged as the top performer, with an annualised return of 15.9%, outshining other assets.
- A diversified portfolio comprising commodities, world equities, and inflation-linked gilts could offer a robust defence against inflation.
Looking beyond the traditional assets, specific inflation-busters like MSCI World Equities ETF, real estate, oil and gas equities, as well as infrastructure, offer unique insights into countering inflation. Each asset class has its quirks in responding to inflation, providing investors with a diverse range of options.
In conclusion, finding the perfect antidote to inflation remains a challenge, emphasizing the need for a well-diversified investment strategy tailored to withstand market fluctuations. As the financial landscape continues to evolve, staying informed and adapting to changing conditions will be crucial in preserving and growing wealth amidst economic uncertainties.
