Properly diversifying your portfolio across asset classes, markets, sectors, currencies and financial instruments is a serious undertaking, but by removing home bias you can maximise rewards and minimise risks.
One of main threats facing investors is inflation. Whilst the topic floats in and out of the news, the long term empirical evidence shows that this factor erodes wealth more than any other.
Investors take heed. UK wealth manager Psigma has released this neat infographic to illustrate the damaging effects of inflation. Around the world people are living for longer than they did in the past. In particular, those who reach retirement age cannot only expect to live for many years in retirement, but also that the actual number of years that any one retiree will live for is extremely uncertain. In a working lifetime of 42 years the pound’s value has been diminishing. Project another 20 or 40 years into the future, what will the value of your assets be then? If your assets have not kept pace with inflation they will become increasingly worthless and will not provide the income you need to live comfortably for the rest of your days?
You might be surprised to learn that inflation impact differs by generation. A new report found that people under 30 face an inflation rate three times more than a typical pensioner and almost double the UK average. Millennials spend proportionally more on dining out, smartphone and internet subscriptions, rent and household bills. They also spend far more on education which significantly pushes up their average cost of living. In contrast, pensioners are enjoying much lower rates of inflation as more of their money is spent on categories that have seen smaller price increases such as food and non-alcoholic drinks.
The cost of living is three times more for millennials than it is for retirees, with those under 30 spending a greater proportion of their income on the areas which have suffered the highest price increases – education and housing. Its imperative that all generations consider the impact of inflation. Growing the real value of your assets over the long-term is imperative. A multi-asset approach can protect your wealth from some of the more extreme markets.
Psigma and other wealth managers from our panel focus on your investment outcomes and build appropriate portfolios using a broad mix of investments. This approach enables them to create an offering that focuses on returns in excess of inflation.
To understand more about how to protect your wealth, we can arrange a no-obligation introduction from a suitable professional, either try our online smart tool or contact the findaWEALTHMANAGER.com team.