Inflation—the general rise in prices over time—can quietly erode your purchasing power. In South Africa, where inflation rates can be volatile, it’s essential to account for this factor in your investment strategy.
Why Inflation Matters
If your investments grow at a slower rate than inflation, your real returns (i.e., what your money can buy) decrease. For example, a 6% investment return in a 5% inflation environment only yields a 1% real return.
How to Combat Inflation in Your Portfolio
- Invest in Equities: Stocks typically outperform inflation over the long term.
- Use Inflation-Protected Assets: Consider assets like inflation-linked bonds and property investments (including REITs).
- Diversify Internationally: Exposure to global markets can shield your portfolio from local inflation shocks.
- Increase Contributions: If inflation rises, increasing your investment contributions can help maintain your financial goals.
- Review and Rebalance: Adjust your portfolio regularly to keep pace with inflation and shifting economic conditions.
Being proactive and inflation-aware ensures your investment strategy protects and grows your real wealth over time.