By: RAOUL RUIZ MARTINEZ
Raoul Ruiz Martinez is the resident Independent Financial Adviser for Finesco Financial Services Ltd at the offices of euroFINESCOs.a. He provides financial advice to UK and European expatriates in Portugal with a high degree of client service and total confidentiality. Finesco Financial Services Ltd is authorised and regulated by the UK Financial Services Authority (FSA).
Inflation has to be the most well used word across financial press, probably next to risk. It has migrated from being an underlying threat that has been stalled by various economic and political policies – until now.
Today, inflation is a current and certain reality that has now been unleashed. Policy makers have turned a blind eye whilst they take cover and disappear and it is another financial factor that can also run out of control. Like risk, inflation levies a certain degree of psychology that you should assess.
From daily grocery shopping to buying the occasional cup of coffee, meal or gift, you will have already noticed increases in costs. You need to ensure that your capital has enough spending power to live through costly times such as these, albeit in the short term, and continue to provide you with the necessary value thereafter.
The reality is that most of you will have a good enough stranglehold on your daily expenditure and that short term savings (bank deposits) and long term savings (pensions) have been and are an intricate part of your overall wealth that will provide you with the necessary balance.
As it is with every knee-jerk action, you may simply want to sell a loss-making asset, such as shares, or even buy something that will provide your capital with the necessary growth or income such as gold, for example. The best advice is to stand back, think and contemplate these factors before you end up kicking something you shouldn’t have.
Investing your capital in assets other than cash or pensions should be considered so that the cost of a cup of coffee or your groceries doesn’t affect your day-to-day living in order to effectively “inflation-proof” your cash. A lack of understanding is a massive obstacle to making informed decisions, and poorly-informed decisions are unlikely to make anyone rich – more likely to result in loss of money and loss of confidence.
It is the common experience of advisers that many clients would shy away from most investments, apart from cash, because of lack of knowledge and scepticism about the investment industry, which has a poor record of educating investors before taking their money.
Know your adviser well enough and together, with a combination of your experiences and their theoretical and practical knowledge, you should be able to select the correct products that will provide you with the necessary investment across inflation-proofing assets to allay most of your concerns through times of inflationary peaks and troughs.
These inflation-proofing products should be all about growth and spread across a number of sectors, which is one thing cash doesn’t do (although cash is a fundamental part of investing). In the 60s it was US equities, in the 70s it was gold (it certainly has been significant this decade), in the 80’s it was Japan, in the 90s it was the technology and telecoms, and in the 00s it looks to be predominantly the commodities (oil and metals).
However, looking back is not enough but at the same time forms part of the correct investment selection. As a successful investor once told me “to make it in the investment world think of it like driving a car with the windscreen blackened out – all you have is your rear-view mirror and your wing-mirrors to move forward without crashing”.
Get your co-pilot right and you will be able to continue to ensure that your capital is well hedged against inflation in the short, medium and long term so that it doesn’t overtake you.
Raoul Ruiz Martinez is based in the Algarve office of euroFINESCOs.a. as an Investment Adviser for Finesco Financial Services Ltd., Glasgow and regulated to advise on capital investments in both the UK and Portugal. He can be contacted either by telephone on 289 561 333.