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How to stop inflation blowing a hole in your life savings

Clothing and energy price rises spark fears the cost of living is set to soar: Here’s how to stop inflation blowing a hole in your life savings

By ROSIE MURRAY-WEST, FINANCIAL MAIL ON SUNDAY

PUBLISHED: 21:51, 22 May 2021 | UPDATED: 10:41, 23 May 2021

If you have filled a car with petrol, bought new clothes or treated yourself to an ice-cream in recent weeks, you’ll know what economists confirmed on Wednesday. The price of goods and services is rising rapidly…

Most economists agree that inflation will continue to inch up – and is likely to breach the Bank of England’s 2 per cent target – but will stabilise before too long…

Investments that could benefit… 

Some investments tend to perform well when prices are rising. Iain Pyle, fund manager of Shires Income Trust, says: ‘Those that do well are commodity-focused, such as metals and mining, autos, chemicals, energy, semiconductors and banks.

‘Meanwhile, stable growth companies such as consumer staples, insurance, healthcare and utilities, tend to underperform.’…

Investment trusts can also help to beat inflation in the short term. That is because they can hold back profits in the good years to pay out inflation-busting dividends year in year out.

And ones that could struggle 

As inflation escalates, investments that pay out a fixed income start to look less appealing because that fixed amount is worth less.

‘Inflation makes investments paying a fixed return less attractive – whether that’s an annuity, a bond, a property company that cannot raise rents, or a company that is not able to increase its dividend,’ explains James Carthew, a fund expert at the investment research company QuotedData…

If inflation surges and doesn’t go away, different solutions may be required.

Carthew says funds with built-in inflation protection may be another option.

He cites Civitas Social Housing, which gets its income from inflation-linked rents on social housing.

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