5 Inflation tips for investors in 2022

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Words like inflation, volatility, and slowdown have been gaining investor and media attention as we navigate a rough start to the new year. Here's how investors can adapt to these changes and make a strategic approach on how you can invest during inflation.

Many investors are left wondering how they can best position their portfolios to handle the uncertainties as government stimulus is reduced, central banks prepare to raise interest rates, and inflation threatens to hinder global economic development.

As the first quarter of the year draws to a close, inflation and, tragically, war in Eastern Europe are hot themes. As a result, the Reserve Bank of Australia and the Federal Reserve of the United States have been talking more about rate hikes and the end of government-funded market supports like the government bond buyback programme.

As a result of the central banks' shift in strategy, corporations will see a faster return to higher short-term borrowing costs, potentially causing market volatility and a reduction in earnings per share (EPS). By the end of the year, inflation is expected to fall to moderate levels, but there is a chance that it will remain higher for longer.

Despite the inflationary environment, we believe Covid-19's early-cycle comeback is complete, and we have a bullish market forecast for the coming year. While we anticipate a lot of opportunities for investors this year, it's also going to be a year of volatility, so keep a few things in mind as you build your portfolio.

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5 Tips for Investors

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1. Review your portfolio — Due to the headwinds of global uncertainty, we predict global equity returns to be in the high single digits. In a more conservative climate, we are gradually rebalancing towards less cyclical, high quality / defensive assets. Healthcare, both locally and globally, consumer staples, and non-cyclical technology sectors, such as the five global leaders in the tech sector (Facebook – now known as Meta – Amazon, Apple, Netflix, and Google – now known as Alphabet – collectively known as the FAANG stocks), which have strong balance sheets and EPS growth history, are some sectors investors should consider.
2. Stay invested and focus on the long game — There will be short-term pullbacks, which will be followed by strong periods of recovery. If you miss the market's top ten days, you'll see a large drop in your overall long-term return. Rather from being scared by the current attention-getting news headline, investors should consider long-term. Do not panic as a result of your feelings. The recent slump serves as a reminder that risk and reward work in tandem.
3. Cash is not king - In a low-interest rate environment, and after inflation and taxes, cash can be a substantial drag on your portfolio. Since 1945, the economy has grown 86 percent in all months, demonstrating that it is better to stay invested and grow wealth rather than retain cash.
4. It's all about the goals - Know your risk tolerance and align your investments with your personal objectives. Investors have been drawn to riskier asset classes due to low interest rates. When setting long-term financial and personal goals, it's critical to think about your risk tolerance and investing horizons. Examine your asset allocations, as recent stock market gains may have pushed you into riskier investments.
5. Follow the golden rule: Diversification is still the best way to deal with market volatility. Invest in a variety of asset classes and evaluate a diverse range of assets from various geographic regions and themes.

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As markets look beyond easy financial conditions in a post-pandemic world, this year's economic growth is projected to be solid but slower, with more headwinds and volatility. We believe that achieving long-term returns this year will necessitate a bigger allocation to defensive sectors, quality companies, and dividend growth strategies. As governments, communities, and economies embrace the 'new normal,' investors have a great chance to examine, reposition, and diversify their portfolios.

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