Defending Your Investments Against Inflation's Devastating Effects

To keep up with inflation, an investor needs investment returns that are higher than the rate of inflation in his or her chosen asset allocation over time. If your goal is wealth accumulation and you have some time on your side, you may find that inflation-beating products like stocks work well for you.

Sometimes it is not possible to do it on your own, look out for portfolio management services and follow the practices with professionals.

Options to beat inflation

It's common knowledge that inflation raises businesses' cost of goods and services. When a company can set prices, it can increase profits by charging customers more. If businesses can innovate to cut costs and boost productivity, they will see a significant increase in their profits.

Investing in commodity funds can be a smart way to spread risk. Gold and silver prices are not influenced by general economic conditions. Regardless of the state of the market, commodity funds typically provide superior returns during periods of rising prices. Look for investment portfolio management professionals, if you don't have enough knowledge.

Stock markets tend to suffer when inflation rates remain abnormally high. While consumer inflation was above 10% in 2008-09 and 2009-10, the market returned -27% in 2010-11. Due to the high rate of inflation, the same thing happened in both 2012–13 and 2013–14.

Their situation is uncommon even among companies. They may see some short-term gains from rising commodity prices, but in the long run, persistently high inflation will hurt businesses by reducing consumer demand.

A positive trend is that, historically, global equities have outperformed inflation over the long term. The BSE Sensex has seen annual returns of 12-16%, which is much higher than the long-term CPI inflation rate of 6-7%.

Floating-rate bonds are an option for investors. Inflation and interest rates tend to go hand in hand. When inflation gets out of hand, the Reserve Bank of India (RBI) raises short-term interest rates to slow down spending. As a first step, RBI increased repo rates by 90 basis points. Debt funds are a good option for generating income after retirement and other long-term goals have been funded.