Financial planning to protect your savings and investments against inflation

investment and savings during inflation

As we look back on the trending topics of 2023, it’s easy to see why inflation dominated our headlines. Everyday items like food, milk, and petrol soared in price, leaving you less money to play with in your household budget. 

While high inflation has a huge impact on your purchasing power, it also puts pressure on your investments to perform. Reviewing your financial plan with a financial advisor like Poole Advisory can protect your investments from fading and make a massive difference to your overall wealth.

What is inflation and how is it measured?

Inflation is the rate at which the general prices of goods and services increase. The most well-known measure of inflation in Australia is the Consumer Price Index (CPI), which is calculated by the Australian Bureau of Statistics (ABS).

The ABS measure the prices of a ‘basket’ of commonly purchased goods and services – such as food and drink, housing, recreational activities, transport, health and education – and calculates the price change for the entire basket compared with the same period last year.

How does inflation impact your purchasing power?

High inflation depletes your purchasing power, because your money buys less than it did compared with the same time in the previous year. For example, in the September quarter of 2023, the CPI was 5.4%. That means goods and services were 5.4% more expensive compared to the same period in 2022.

In other words, if you spent $100 on goods and services in September 2022, you would need $105.40 to buy the same goods and services in September 2023. If you’ve noticed your favourite beer or chocolate bar creeping up in price each year, that’s inflation at work.

How does inflation impact your savings and investments?

A smart financial plan and investment strategy can grow your wealth over time. Whether that’s by 5%, 7%, 10% or more annually, your returns will fluctuate across the course of your investment with the relevant markets.

The problem is that when the CPI is higher than your investment returns, the real value of your investment is actually going down. That’s why it is so critical to review your investments with an experienced financial planner during periods of high inflation, to ensure your wealth is secure.

investing in an highly inflationary environment

Financial planning for an inflationary environment

To reduce the impact of inflation on your wealth, you should consider reviewing key financial areas such as your:

  • Mortgage. As inflation rises, the Reserve Bank of Australia (RBA) will probably continue to increase the official interest rate, which is their primary means of controlling inflation. If you have a variable-rate mortgage, you’ll repayments will increase, so it might be time to shop around for a better rate.

  • Superannuation or self-managed super fund (SMSF). Depending on your age and how close you are to retirement, you may want to adjust your asset allocation within your superannuation or SMSF.

  • Savings accounts. The current high interest rates mean keeping your money in a savings account is attractive, but if your bank’s interest rate is lower than the CPI, the real value of your savings is going down. Consider switching to an investment with higher potential returns, depending on your risk tolerance.

  • Investment portfolio. High inflation and high interest rates create fear and uncertainty, which can cause investors to make rash decisions and markets to drop. That’s why diversification is a wise strategy during times of inflation, to avoid exposing yourself to unnecessary risk and potential losses.

Investment assets that perform well during times of high inflation

Gold and commodities

Gold and other commodities have long been considered an inflation hedge. As the price of goods and services rises, the commodities used to produce those goods and services typically rise as well. 

In 2022, Wells Fargo analysed data on 15 major asset classes to determine the best and worst returns during inflationary periods since 2000. They found oil was the highest-performing asset with a whopping jump of 41%, while gold was the third highest-performing asset group with a return of 16%.


Shares are seen as an inflation hedge because they historically deliver higher total returns than the CPI. For example, Australian shares have produced a total average compound return of 9.1% per annum over the past 30 years. The average CPI during that same period? A lowly 2.6%.

Unlike gold and commodities, dividend stocks can provide an income stream to meet your higher day-to-day expenses. Given inflation is not uniform worldwide, you might also consider investing in markets where the local inflation figures are lower. Shares are an easy way to gain exposure to international markets with strong growth potential.

Property and real estate investment trusts (REITs)

Like shares, property returns have historically outperformed inflation, both in terms of rental yield and capital growth. If you’re paying back a mortgage, your house will most likely increase in value over the long term. However, as inflation rises, you’ll pay your lender back with money that’s worth less than when you originally borrowed it.

For investment properties, rental prices are measured as part of the housing component of the CPI, so rental yield increases almost by definition. If you don’t own an investment property, a REIT – a publicly traded trust that allows you to invest in real estate assets – is a great way to gain exposure to the property market.

Why you should consult a financial planner before rushing to traditional inflation hedges

Past results are no guarantee of future returns, and traditional inflation hedges may not perform as strongly this time around. The CPI has been higher than the RBA’s target rate of 2-3% for the past two years already, giving investors plenty of time to adjust their portfolios. A price jump from increased demand for these assets should already be factored in.

If you want to protect your wealth against high inflation, speak to a qualified financial advisor before making any adjustments to your savings or investment portfolio. With over two decades of experience, Poole Advisory has helped clients in Sydney, Bowral, and the Southern Highlands navigate high inflationary environments for years.

We can help you create a sound investment strategy to mitigate the impact of inflation on your portfolio going forward. To get started, simply reserve a time to speak with our Principal Financial Advisor Anthony Poole during your complimentary introductory consultation, or send us a message via our contact form. We look forward to hearing from you.

Compliance Disclaimer:

This information contains general advice only, that is, advice which does not take into account your needs, objectives, or financial situation. You need to consider the appropriateness of that general advice in light of your personal circumstances before acting on the advice. You should obtain and consider the Product Disclosure Statement for any product discussed before making a decision to acquire that product. You should obtain financial or credit advice that addresses your specific needs and situation before making investment or borrowing decisions. Taxation information is based on our interpretation of the relevant laws as at 1 July 2018. While every care has been taken in the preparation of this information, Prosperitas Partners Pty Ltd does not guarantee the accuracy or completeness of the information. The case studies are hypothetical, for illustration purposes only and are not based on actual returns

Poole Advisory Pty Ltd ABN 15 642 040 604 is a Corporate Authorised Representative (No. 001282603) of Prosperitas Partners Pty Ltd ABN 30 662 654 453 AFSL 544 917

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