What to Invest In to Beat Inflation | Complete 2024 Guide

image of cash which is not an inflation building

With inflation on the rise, many investors are wondering what to invest in to beat inflation and protect their savings. As the old saying goes, inflation is taxation without legislation – it erodes the purchasing power of your money over time. So how can savvy investors aim to mitigate inflation risk? Here are some tips from the alternative investment firm New Capital Link.

Inflation reared its ugly head in 2021 after years of muted price rises, climbing to highs not seen in decades. With inflation expected to remain elevated in 2022, investors need to take action to beat inflation with their portfolios. The good news is that while inflation can seem daunting, there are tried and true ways to aim to keep your money working as hard as you did to earn it.

Diversify Across Asset Classes

One of the best defences is to diversify your portfolio across different asset classes. Stocks, bonds, real estate, commodities, and alternative investments like private equity can all have a role to play. Each asset class has differing sensitivities to inflation, so blending them can aim to smooth out inflationary impacts. Within each asset class, further diversification is key — such as holding domestic and international stocks across different sectors.

image of inflation beating assestts - real estate

Focus on Real Assets

Real assets are those with inherent worth due to their tangible value, such as real estate, commodities, or infrastructure. As inflation rises, the price of real assets also tends to rise. This helps mitigate inflation risk relative to paper assets like stocks and bonds. Some examples of real asset investments include real estate investment trusts (REITs), energy pipelines, timberlands, farmlands, and commodities funds.

Consider TIPS

Treasury Inflation-Protected Securities (TIPS) are government bonds whose principal value rises with inflation. So as consumer prices increase, TIPS are designed to have their face value and interest payments adjust higher. This feature aims to preserve the purchasing power of the investment. While returns can be more muted than stocks, TIPS provide steady income and inflation protection.

Embrace Equities

Equities have been proven inflation fighters over long periods thanks to their growth potential. Companies tend to increase product prices as their input costs rise, aiming to at least keep up with inflationary pressures. Rising dividends over time can also help mitigate inflation impacts for investors focused on income strategies. Equities do come with higher short-term volatility though — a risk some investors may want to offset via asset class diversification.

image of cash which is not an inflation building

The Risks of Cash

Conversely, cash is one of the asset classes most vulnerable to inflation erosion. Savings account interest rates may creep higher as central banks raise rates, but likely not enough to outpace inflation. As the purchasing power of money held in cash decreases yearly, investors risk not keeping up with inflation or reaching their financial goals.

Inflation-Beating Alternative Investments

As discussed above, diversification and real assets are two keys to crafting an inflation-resistant portfolio. At London-based alternative investment firm New Capital Link, their specialised investment products open up new opportunities in these areas for accredited investors. With over 5 years of proven returns, New Capital Link has established partnerships globally to deliver custom alternative investment solutions.

Areas they focus on include real estate, venture capital in growth sectors like fintech, as well as fund of funds structures. These strategies are designed to generate returns less correlated to traditional holdings while providing specialised exposures harder to access for everyday investors. Many target between 10-15% yearly returns over the longer term – well above inflation.

In today’s uncharted monetary environment with higher inflation risks, New Capital Link builds portfolios aiming to mitigate downside risks through expanded diversification. At the same time, they pursue upside opportunities by tapping into specialised assets with return profiles not always accessible to traditional equity and bond investors.

Inflation may be top of mind today for many investors but know that there are time-tested strategies to aim to beat it over time. Inflation can be a good thing, encouraging economic growth and carefully positioned investment portfolios. By diversifying into real assets and considering vehicles like private equity, investors can take proactive steps to strive for healthy returns even with rising inflation.

by Rachel Buscall

by Rachel Buscall

Co-Founder & Managing Director at New Capital Link. Having started her career in the financial sector, Rachel demonstrated a natural flair for entrepreneurship.

New Capital Link

Alternative investment specialists offering structured opportunities across the UK & Overseas.

New Capital Link is a boutique London-based introducer that offers unique UK & global investment opportunities worldwide.

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Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be very complex and high risk.

What are the key risks?

1. You could lose all the money you invest

If the business offering this investment fails, there is a high risk that you will lose all your money. Businesses like this often fail as they usually use risky investment strategies. 

Advertised rates of return aren’t guaranteed. This is not a savings account. If the issuer doesn’t pay you back as agreed, you could earn less money than expected or nothing at all. A higher advertised rate of return means a higher risk of losing your money. If it looks too good to be true, it probably is.

These investments are sometimes held in an Innovative Finance ISA (IFISA). While any potential gains from your investment will be tax free, you can still lose all your money. An IFISA does not reduce the risk of the investment or protect you from losses.

2. You are unlikely to be protected if something goes wrong

The business offering this investment is not regulated by the FCA. Protection from the Financial Services Compensation Scheme (FSCS) only considers claims against failed regulated firms. Learn more about FSCS protection here. https://www.fscs.org.uk/what-we-cover/investments/ or

Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker here. https://www.fscs.org.uk/check/investment-protection-checker/

The Financial Ombudsman Service (FOS) will not be able to consider complaints related to this firm or Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated firm, FOS may be able to consider it. Learn more about FOS protection here. https://www.financial-ombudsman.org.uk/consumers

3. You are unlikely to get your money back quickly

This type of business could face cash-flow problems that delay interest payments. It could also fail altogether and be unable to repay investors their money. 

You are unlikely to be able to cash in your investment early by selling it. You are usually locked in until the business has paid you back over the period agreed. In the rare circumstances where it is possible to sell your investment in a ‘secondary market’, you may not find a buyer at the price you are willing to sell.

4. This is a complex investment

This investment has a complex structure based on other risky investments. A business that raises money like this lends it to, or invests it in, other businesses or property. This makes it difficult for the investor to know where their money is going.

This makes it difficult to predict how risky the investment is, but it will most likely be high.

You may wish to get financial advice before deciding to invest.

5. Don’t put all your eggs in one basket

Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well. 

A good rule of thumb is not to invest more than 10% of your money in high-risk investments. https://www.fca.org.uk/investsmart/5-questions-ask-you-invest

If you are interested in learning more about how to protect yourself, visit the FCA’s website here: https://www.fca.org.uk/investsmart

For further information about minibonds, visit the FCA’s website here.https://www.fca.org.uk/consumers/mini-bonds