« | Main | »

Quick Q and A: Wealth Preservation in the Face of Inflation

By beled | October 29, 2013

Comments from David Leslie:

Q1: How do you pick growth stocks that counter inflation?

To achieve real growth – i.e. growth in excess of inflation – investors should choose quality growth assets (primarily equities and property) and adopt a long term view.   High risk is created by low quality assets and a short term view. Cash in the bank is a high risk long term asset because the investor is guaranteed to lose real value. Cash can be a good short term “parking bay” at times when it is difficult to find good value in quality growth assets. The quality/value dynamic is the key to picking stocks which will grow in real terms.

Q2: What should we ‘expect’ inflation to be?

We don’t know! We are currently in a period of low inflation and the expectation is that until unemployment in the US and Europe falls significantly, further inflation will remain subdued. The US is ahead of the game and Europe is lagging. In SA inflation is trending upwards and cost pressures are high (wages, electricity, etc.). So you can talk trends, but not targets!

Q3: How can you possibly counter inflation over 10, 20 or 30 years?

Easily! By investing in high quality shares when they offer good value and staying the course, your returns should easily beat inflation. Choosing a good manager to do this for you (unit trusts or bespoke portfolios) is also key, since this manager will be making the buying and selling decisions on your behalf. The debate between active and passive (i.e. index tracking) styles is another debate – and one we will cover in a future Q and A.

Topics: Blog | No Comments »

Comments are closed.