Choosing investments to beat inflation

We can all relate to that, especially given the inflationary environment we’ve experienced in recent years. Be it haircuts, groceries or petrol, prices have been rising at a problematic rate.

Fortunately, the pace of inflation has slowed down. Consumer price inflation (CPI), the main measure of inflation’s impact on households, averaged nearly 7% in 2022. By November 2024, annual consumer price inflation was 2.9%.

That said, inflation isn’t something to worry about only when it’s high. You need sound investment strategies and tools designed to outperform it in the long run.

What is inflation?

Inflation is a sustained rise in prices across the board. Brief spikes don’t amount to inflation. Similarly, a sustained rise in the price of any one product doesn’t meet the definition. Inflation means that most prices are rising persistently.

The dangers of this are clear. At 5% inflation, the R100 in your pocket today silently turns into R95 in a year’s time. Unless you get smart.

5 considerations when choosing investments

Matching inflation should be the minimum for which any investing strategy is designed. Depending on your individual circumstances, you can then build in tactics to help you significantly outperform inflation.

Some critical steps for creating an inflation-busting investment strategy include the following:

1. Set down specific goals. The exact mix of financial targets will be unique to you. The more specific and realistic the better.
2. Establish your time horizon. Work out a timeline for each goal you set yourself. This is an important factor when choosing an investment fund or product. If you are able to wait, you’ll have access to more investment options. These might be more volatile, but will have a higher expected long-term return. This gives you a better chance of beating inflation by a larger margin.
3. Evaluate your risk appetite. Investments with higher risk also come with a better chance of returns that substantially exceed inflation.
4. Diversify. As with any financial planning, don’t put all your eggs in one basket. A robust portfolio made up of different types of assets gives you the best chance at beating inflation.
5. Monitor progress. Our lives rarely play out exactly as planned. In time, your goals will likely shift. It’s worth checking in from time to time and making sure your goals and financial plan are still a good fit.

Making index-tracking investments work for you

Index-linked products, like our ETFs and unit trusts, offer three distinct benefits to first-time and experienced investors:

• They provide an affordable way to diversify your portfolio.
• They make it easy to invest in different asset classes around the world; for example, tech companies or gold mining.
• They are highly transparent. You know exactly what assets you are holding in each fund.

For example, the 1nvest Inflation Linked Bond Index Tracker Fund is a moderately conservative fund that we recommend be held for no less than a year. It aims simply to track inflation so that you hold onto the value of your money.

Our 1nvest Gold ETF is another tool designed to battle the costs of inflation. Holding this ETF means you are invested in gold, which is, traditionally, a store of value investors use to combat inflation. (Find out how to make your first investment in gold.)

For a more expansive option that gives investors with a longer time horizon the chance to perform well above inflation, we have the 1nvest S&P500 Info Tech Index Feeder ETF. This is one of our more aggressive funds, which we recommend investors hold for no less than five years. Holding a bundle of global technology stocks, this fund offers investors a high degree of volatility in return for a high expected return.

Ask your financial advisor

Outsmarting inflation alone may seem a daunting task. A registered financial advisor will guide you through the process and help you craft a holistic approach that fits your needs. Ask your financial advisor about incorporating 1nvest funds into your financial plan.