ADVICE FOR INVESTORS

WHAT if Wade is right? What if we’re entering the “Roaring 2020s”? How can investors prepare themselves?

Ricardo Teixeira, a Certified Financial Planner and chief operating officer of wealth advisory firm BDO, says inflation must always be top of mind for investors, whether it is at four percent or eight percent. “The approach is to have an investment strategy that deals with inflation. What we see, and this is common behaviour, is that people are very fearful of losing money, and so they avoid taking risks. But without taking risks, we don’t keep pace with inflation. And the biggest single strategy to keep pace with inflation is to make sure you have an allocation to growth assets – equities, bonds, property – and you are not just in cash.”

Teixeira says your employment income will probably keep pace with inflation.

“The problem is that much of what we spend our money on have inflation rates that are different from the quoted figure: for example, petrol prices and electricity go up faster than the quoted inflation rate. So you also need to ensure that you are spending wisely, but also ensure that your savings are growing at a rate above inflation,” he says. Retirees relying on their investments for an income also need to have growth assets in their portfolios.

Teixeira says clients are worried about whether returns will outperform inflation if we go into a sustained high-inflation environment. “That’s difficult to answer. If economic fundamentals have changed as a result of the pandemic, there is the question of whether growth assets will be able to keep pace with inflation, and that is a risk. But what I can go back to is to make sure you are allocated to the bestperforming asset class.”