Inflation—the rising cost of goods and services—can quietly erode the value of your money over time. For UK investors in 2025, understanding its effect on your portfolio is more important than ever.
Impact on Cash and Bonds
Cash savings lose purchasing power in high-inflation environments, especially if interest rates don’t keep up. Fixed-income investments like traditional bonds also suffer, as their payouts become less valuable in real terms.
Impact on Stocks and Real Assets
Equities, especially those from companies with pricing power, often perform better during inflation. Real assets like property and commodities (including gold) are also popular inflation hedges.
How to Protect Your Portfolio
- Diversify across assets: Include stocks, property, and inflation-linked bonds.
- Reassess cash holdings: Keep only necessary cash in low-interest accounts.
- Invest in real growth: Focus on companies and funds that can increase earnings despite inflation.
Inflation is a normal part of the economic cycle. The key is to ensure your investments grow faster than inflation over time.