Safeguarding Your Savings: Protection Against Inflation

To ensure the growth and real value of your savings, it becomes imperative to invest wisely and aim for returns that not only surpass inflation but also generate real growth.

Understanding the Inflation Challenge:

Based on the long-term inflation in South Africa, it is important to recognize that each year you effectively start with a negative 6% return on your savings. Simply leaving your money in a low-interest savings account or under the proverbial mattress would gradually erode its worth.

To counteract the negative impact of inflation, you must adopt an investment strategy that recoups inflation and generates additional returns to grow the real value of your savings. For example, if you opt for a balanced portfolio that offers an annual return of 10%, it might seem like a significant gain. However, considering the 6% inflation rate, the real growth of your investment would only equate to about 4% per year.

When aiming to safeguard your savings against inflation, diversification and risk management play a pivotal role. A balanced portfolio is an example of diversification, which involves spreading your investments across various asset classes such as stocks, bonds, real estate, and commodities. By diversifying, you can potentially mitigate risks associated with individual assets and market fluctuations, helping to ensure consistent growth even in the face of inflation.

Protecting your savings against inflation requires ongoing monitoring and adjustments to your investment strategy. As inflation rates fluctuate, it is essential to stay informed and adapt your portfolio accordingly. Regularly reviewing your investments, consulting with a financial adviser, and keeping up with economic trends can help you make informed decisions and maintain the purchasing power of your savings over time.

By staying proactive, monitoring your investments, and making informed decisions, you can navigate the challenges of inflation and secure a brighter financial future.

Source: Adapted from (The PSG Wealth Perspective Q1 2023)