What can I do to protect my savings against rising inflation?

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Ask the expert at Smith & Pinching about how rising inflation levels affect your savings and investments - Credit: Getty Images/iStockphoto

I have a fairly wide-ranging investment portfolio plus some Cash ISAs, which I’ve kept as my emergency fund. I am, however, quite worried that my total nest egg won’t keep pace with inflation with the RPI at 4pc or 5pc, as seems to be the case at the moment. Can I do anything to protect my position?

Richard Barker, chartered financial planner with Smith & Pinching

Richard Barker, chartered financial planner with Smith & Pinching - Credit: Smith & Pinching

Richard Barker of Smith & Pinching responds:

Rising inflation is certainly a challenge for your cash savings as interest rates are already struggling to keep pace with price increases. Some fixed-term cash savings may give you a slightly better rate, but that would limit the availability of your cash for emergency access.

Investing is all about the long game: for those who can leave their money invested for the longer term, there is a better prospect of inflation-beating growth, even if prices do rise.

The key to investment success is usually a combination of suitability, diversification and agility. This means that your portfolio should not only be right for you in terms of your attitude to investment risk and the goals you have set, but should also be invested across a range of investment assets so that you have no concentrated pockets of risk.

Some investment assets may be index-linked, providing a measure of protection against inflation. Critically, your portfolio should be reviewed and adjusted regularly to mitigate market turbulence. This can be done with your direct involvement through regular meetings with your adviser or by using portfolio management whereby you authorise an investment manager to adjust your portfolio as markets change in a contract with you that determines the frequency and limitations of such changes.

I suggest you discuss your finances with an independent financial adviser from a firm of Chartered Financial Planners to build a financial plan and explore what measures would give you some protection against inflation. We use lifetime cashflow planning tools that allow us to calculate growth projections for your investments under different scenarios, reflecting different rates of inflation and market growth over periods of time. It would also help to determine what emergency funds you should be holding, potentially freeing up further capital for your investment portfolio.

Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

For more information, please visit www.smith-pinching.co.uk