'Learn from the past to inflation-proof portfolios'

"In very high levels of inflation over extended periods, this may become more challenging to continue to offer inflation protection here."

"Equities typically can handle some inflation and certain sectors will be safer than others, particularly those that can pass on rising cost inputs to their end clients. Therefore, not overly effecting their earnings quality. When earnings are negatively impacted from inflation this is when equities may re-price."

"UK equities are more reasonably priced and therefore could protect better, and the UK equity market may also benefit from being more commodity and financially related exposures, which may well stand to benefit from the current inflationary pressures."

"Ultimately, if inflation stays stubbornly high and central banks remain on the journey of hiking interest rates, this could be a difficult scenario for both bonds and equities. Bonds because of their interest sensitivity characteristics and equities will be impacted by a changing discount rate which will hamper future cash flows."

Find how other investments fared here: 

Asset/ product typeAnnual return, to 30 April 2022Annual return to end of Dec 2021Real annual return after UK CPI inflation, to 30 April 2022Real annual return to end of Dec 2021
Average easy access cash savings accounts (interest)*0.39%0.17%-8.61%-5.23%
Average 1-yr fixed rate bond (interest)*1.24%0.59%-7.76%-4.81%
Global equities (MSCI World Index)**6.4%22.9%-2.6%17.5%
UK equities (FTSE All Share)**8.72%18.32%-0.28%12.92%
Residential property – capital growth***12.1%10.4%3.1%5%
Residential property – rental yield, gross (to Feb 22)****4.93%4.98%-4.07%-0.42%
Gold **19.42%-2.87%10.42%-8.27%
Global corporate bonds**-3.86%-2.06%-12.86%-7.46%

Source: Interactive Investor research, May 2022

Becky O’Connor, head of pensions and savings at interactive investor: “In these times of ultra-high inflation, not to mention geo-political strife, investors are having to quickly re-write their own rule books.”

“The problem is if you react to events after they have happened, you may have already missed the boat as the tide turns and end up crystallising losses through selling the assets that have fallen in value, then buying other assets at higher valuations, after they have found favour.”

Cobbe added: "The main problem is with traditional nominal bonds. In normal times; these provide steady income, capital preservation and diversification."

"In an inflationary regime you are paying (in real terms) to own bonds (negative real yields), they fail to preserve capital in real terms and as we’ve seen, they fail to provide diversification."

"Managers need to consider alternatives to bonds to build in inflation resilience: for example liquid real assets (including property infrastructure and gold), and (good) absolute return funds that can deliver a premium to bonds."