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Investors urged to inflation proof amid growing Covid cost

“Neither of those would make any noticeable dent in this mountain of debt, and even doing both it would still take 150 years to pay down.”

With the UK braced for another month of lockdown, and the government pledging to protect most ‘viable’ jobs, it is unlikely the monthly borrowing figures are going to dwindle any time soon.

Where to turn

As inflation erodes the value of cash sitting in the bank, particularly when interest rates are at historic lows, experts encouraged investors to avoid “large cash piles” and instead turn to gold and equities.

Jason Hollands, managing director at Tilney, said: “Investors do need to prepare for this. Firstly, by not holding excessive amounts of cash, the real value of which will get eroded by inflation.

“Secondly, you need to own assets that can provide a degree of inflation protection such as index-linked bonds, real assets like gold, and equities.”

Meanwhile, Ruffer said it had protected its portfolios with inflation-linked bonds and gold making up more than 40 per cent of the assets, while Mr Becket said Psigma had increased exposure to both the debt and equity of companies for whom a backdrop of rising prices would be an advantage.

Scott Gallacher, director at Rowley Turton, agreed it was worth preparing for inflation but claimed that a well-diversified portfolio should already be set for such an outcome.

He said: “Investors are wise to be aware of the risk but I suggest that a well-diversified investment portfolio offers the best protection as real assets, such as property and equities, are generally regarded as being a good protection against inflation.”

For Willis Owen’s Mr Lowcock, it was important investors prepared for a “range of possibilities” going forward as inflation was “by no means guaranteed” and “could still take a few years to materialise”.

He said: “Equities have historically done well when inflation is present but generally if it is mild inflation, say 2 to 6 per cent.

Higher, and things get complicated with some companies struggling to keep and unable to pass on the higher prices.

“Bonds are not great for inflation, although some areas such as high yield are much less sensitive as are short-duration bonds. Government gilts with low yields look unattractive and inflation-linked bonds just don’t offer much protection.

“Gold has a history of offering inflation protection and should continue to do so. It is more attractive in the current climate of low and negative interest rates as well.”

imogen.tew@ft.com

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