Every investor must reckon with the usually gradual loss in value. When structuring their portfolios, investors must always take inflation risks and the inflation rate into account and, if necessary, take countermeasures.
Everything changed after the 2008 financial crisis
The financial crisis and its effects pose a special challenge to investors with a long-term horizon. Investments in tangible assets such as commodities, precious metals, real estate or even selected shares offer a good alternative in the face of rising inflation. Traditionally, these perform better than average in an inflationary environment.
Of course, deflationary phases can always occur in the short term. In such cases, investments in money market paper or government bonds tend to offer a temporary "safe haven".
Funds with some inflation protection
One way to escape inflation to a certain extent is to invest in funds that invest exclusively in inflation-protected bonds. If the experts on the bond market assume that inflation will pick up, the prices of inflation-protected securities rise. However, if the rates of increase already priced in turn out to be too optimistic, the prices of inflation-linked bonds also fall and with them the fund prices.
Inflation-protected bond funds therefore offer no protection against price losses in an environment of rising interest rates. Moreover, investors must be prepared for up to six percent front-end load and annual fees of up to one percent of the fund performance.
Open-ended real estate funds as an alternative
With relatively low risk of loss, open-ended real estate funds offer quite good protection against inflation. Open-ended real estate funds invest their investors' capital in office buildings, shopping centres and hotels. In exness member area login, their rents are usually linked to inflation. A higher price increase automatically causes rents to climb. This is less common worldwide.
Fund investors with opportunities
Even in an environment of rising inflation, choosing the right fund and a clever investment strategy can lead to success. With a good knowledge of the funds on offer, suitable financial products can also be found for private investors.
ETFs also cushioned
Likewise, fully replicated ETFs, which track the underlying index one-to-one via the corresponding stocks or bonds, offer no default risk. Investors bear only the market risk of the underlying index.
Closed-end investment funds structured differently
Since closed-end investment funds represent an investment in a corporation, such an investment is not controlled by the Federal Office for Financial Services Supervision in Germany. Every investor should be aware of this when considering the purchase of shares in a closed-end investment fund. In any case, they will have to accept a risk of default.