Strategies for Safeguarding Wealth Against Inflation Erosion

In the ever-changing financial landscape, building a resilient portfolio is crucial for investors seeking to weather the storms of inflation. Stephan Albrech, the CEO of Albrech & Cie. Asset Management AG in Cologne, emphasises the importance of broad-based global markets, which should make up 50 to 80% of an equity portfolio's core.

The importance of this diversification is evident when we consider the current state of private investment. While the total amount invested in index funds stands at 60 billion euros, savings accounts and instant access deposits hold a staggering 2,000 billion euros. This imbalance highlights the potential for growth in the index fund sector.

However, focusing on current trends such as New Energy, Gaming, and Blockchain can lead to speculation rather than investment. A more prudent approach involves considering companies with strong market positions in sectors like consumer goods and food. These companies can benefit from passing on higher costs to customers, making them attractive investment prospects.

The core of an equity portfolio should not consist mainly of trend investments but rather broad-based global markets. Investors can supplement their large core with various instruments in regions and themes where they see particular opportunities.

Inflation can present a special opportunity for wealth creation. Real estate, particularly Real Estate Investment Trusts (REITs), has consistently achieved a return above the inflation rate over the past 50 years. Banks also benefit from inflationary trends, as they can achieve a higher margin thanks to wider interest spreads between lending and borrowing.

Diversification is key to offsetting inflation effects. This can be achieved through funds and ETFs, allowing for broad diversification across stocks, bonds, and real estate. Excess liquidity can be well-placed in the gold portion of one's assets, as exemplified by strategies from investors like Paul Tudor Jones.

Tangible assets, such as stocks, real estate, commodities, and gold, are the first line of defense against higher inflation. Companies that supply agriculture with machinery and raw materials are likely to be on the winning side in inflationary times.

It's important to note that cash is not a waste, but holding more than necessary may not be advisable at the moment. When central banks intervene to limit inflation, cash can be the unrestricted winner of interest rate hikes.

Germany currently has 2.5 million savings plans, with the majority of money flowing into equity ETFs. The country's investors have experienced comparable numbers to their US counterparts, who, in the 1980s, received up to 14% interest per year from Uncle Sam on newly issued 30-year Treasury bonds.

In conclusion, building a resilient portfolio requires a balanced approach, focusing on broad-based global markets while supplementing with targeted investments. Diversification into inflation-resilient assets like energy stocks, gold, and alternative investments such as Bitcoin can help protect purchasing power. As always, it's advisable to consult with a financial advisor when making investment decisions.