This month we share why everyone is talking about inflation, and how you may protect your wealth from inflation. Mark shares his learnings from Warren Buffett and his first experience of Noetic Science, and the success of Aimee Pratt securing an Olympic qualifying time!
Why people are talking about inflation and protecting your investments.
In recent decades, sustained inflation in developed markets has been absent and has therefore not been an economic problem for many to consider.
However, there are several reasons we believe many individuals who hold investments should become aware of inflation risk:
1- Money creation (Governments ‘printing’ money) has reached levels we have not seen previously. For example, the US money supply has grown by almost 1/3rd from $15.5 Trillion to $19.7 Trillion.
2 – For the first time in the United State’s history, there have only been two previous instances of consecutive double-digit fiscal deficit years (1918-1919 (World War 1), 1942-1945 (World War 2), 2020-2021 would mark the third.
3 – Long-term bond yields have been increasing recently.
But why does this matter to you?
Inflation can have a negative effect on the real value of your investments.
What do I mean by ‘real’ value?
‘Real’ value is the purchasing power of your money, how much you can buy with a set amount of money.
Let us say you are at the supermarket, and you reach into your pocket and find £100.
And while at the supermarket you decided to buy a basket of goods, let us say: Milk, Cheese, Bread, a bunch of apples, a few potatoes, and a chicken, etc. let us say it came to £100 (you bought a lot of potatoes).
Now, imagine you had the ability to time travel, and instead of using that ability to win the EuroMillions, you go back say 40 years and you go to the supermarket and buy the exact same basket of goods and receive a significant amount of change back.
This is because the price of goods in 1981 is considerably cheaper than in 2021 meaning you have considerably higher purchasing power.
Inflation deteriorates your purchasing power.
So, how could you protect your purchasing power moving forward?
An insightful study by Neville et al. (2021) reviewed eight historic inflationary regimes and the performance of a wide-ranging set of asset classes and investment strategies across the U.S., U.K., and Japan.
The study shows commodities (which is a broad term and includes Industrials, precious metals, agriculture, livestock, energy, gold, and silver, etc.) generally provide a real return in inflationary periods, as does, short-duration bonds, and collectibles (e.g. fine art, wine, stamps). The study goes into the structural differences of this future potential inflationary regime versus previous ones, and how cryptocurrencies may play a role in an individual’s overall portfolio to protect against inflation.
For those interested in diving into the detail, you can find a link here.
What have we done to protect against inflationary risk?
At Daintree to protect clients against inflationary risk, we have focused on investing client portfolios into globally diversified inflation-linked and short-dated bond funds.
As we continue to see signs of increasing inflation, we will look to gain exposure to some of the asset classes mentioned above and continue reviewing the duration of our existing bond holdings.
This month Mark shares what he has read this month! Click here to find recommended reading.
Similarly, Aidan shares his learnings from Meditations by Marcus Aurelius, to read more click here.
A not so relaxing walk through Edale & Aimee Pratt success
Last month Daintree members came together and went for what was meant to be a relaxing walk on an Edale trail. For those familiar with Mark, you know it was never going to be just a relaxing walk, rather than stick to the gentle incline with lovely scenic views, we went off the beaten track and instead scaled the hillside.
Legs burning, heart-pumping furiously through our chests, we made it to the top and took a victory photo.
You may be aware as a company, Daintree Wealth Management, supports the Diane Modahl Sports Foundation (DMSF).
Last week, the DMSF made history as the first-ever home-grown athlete, Aimee Pratt, and DMSF Performance Coach, Vicente Modahl, secured the Olympic qualifying time.
All of us at Daintree are incredibly proud of the work Aimee has put into achieving this first great step towards reaching the Olympic final and the work DMSF continues to do!
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