Inflation Beating Investments: Strategies to Protect Your Money

Written by James Caldwell
Last updated: 2nd April 2023

Inflation is a persistent increase in the general price level of goods and services in an economy. As a result, the value of money decreases over time, leading to the erosion of purchasing power.

Inflation can affect all aspects of life, from everyday expenses to long-term investments. This article will examine strategies to help investors beat inflation. We will focus on investments that can outpace the rate of inflation.

What is Inflation?

Over time, inflation measures the rate at which prices for goods and services increase. It is usually measured using the Consumer Price Index (CPI). The CPI tracks the prices of common household goods and services.

Using the CPI, we can calculate the inflation rate, which reflects the percentage of price increases over time.

Historical Inflation Rates over last 10 Years

Here is a table showing the annual inflation rate in the UK for the last 10 years:

Year Inflation 5 Year Average
2013 1.90% 2.64%
2014 0.70% 2.53%
2015 0.50% 2.11%
2016 1.80% 1.53%
2017 2.70% 1.54%
2018 2.00% 1.54%
2019 1.40% 1.59%
2020 0.80% 1.72%
2021 4.80% 2.02%
2022 9.20% 3.07%

Source: Office for National Statistics

The inflation rate is the percentage increase in the general level of prices over a period of time. It is measured by comparing the price of a basket of goods and services in a given year to the price of the same basket of goods and services in a base year. The inflation rate in the UK is monitored by the Bank of England, which has a target of 2% inflation per year.

How Inflation Impacts Investments

It is important to remember that inflation can significantly affect investments, especially those that generate a fixed income or those with a long maturity period.

An investor’s purchasing power will decline over time if inflation exceeds the rate of return on investment. Inflation is 6% per year. As an investor, if you own a bond that pays 3% per year, the real rate of return is -3%. This means you are losing money.

Strategies to Beat Inflation

  1. Equity Investments – Shares have historically been one of the best inflation-beating investments. Due to the ability to adjust prices to keep up with inflation, companies’ earnings tend to rise with inflation as well. However, not all shares are created equal. Investors should focus on companies with a competitive advantage and a strong record of earnings growth.
  2. Property – Property or real estate is another asset class that has historically outperformed inflation. Property prices tend to rise with inflation, and rental income can be adjusted to keep pace with inflation. Additionally, property can provide diversification benefits to a portfolio.
  3. Commodities – Investments in commodities, such as gold, silver, and oil, are often considered inflation hedges. This is because commodities tend to rise in price with inflation, and they can add diversification to a portfolio. Commodities, however, can be volatile and should make up a small portion of an investor’s portfolio.
  4. UK Index Linked Gilts – UK index-linked gilts are government-issued bonds that adjust their nominal coupon payments and final settlement repayments to account for inflation. Consequently, the bonds’ coupons and final settlement amount retain their real (i.e. inflation-adjusted) value over time, thus helping protect your investment from inflation.
  5. High-yield Bonds – High-yield bonds, also known as junk bonds, are typically issued by companies with low credit ratings rated below BBB. To compensate investors for the added risk, they tend to offer higher yields than investment-grade bonds. A high-yield bond can provide an attractive source of income and inflation protection even though they are not without risk.
  6. Structured investment productsStructured investment products are typically designed to provide a specific return profile in response to varying market conditions. These products can provide a range of benefits depending on the investor’s risk appetite, including inflation linked or defensive investment options where your money is protected in real terms. They can also offer a more diversified approach to investing than an individual bond or stock. Structured investment products can be complex and should be carefully evaluated before investing.
Investments that generate a higher return than inflation are inflation-beating investments.
An investor’s risk tolerance, investment goals, and time horizon determine the best investment for inflation protection. It is important to research the investment options available, understand their features and risks, and assess the potential returns before investing. Diversifying across investments can help to reduce the risk of any one investment failing to meet expectations. Tax-efficient investments, such as ISAs, can also help protect investors from inflation’s impact. Ultimately, the best way to protect your purchasing power from inflation is to invest in a portfolio of assets that can deliver returns that exceed inflation.
There are various ways in which inflation can affect the stock market. Rising inflation can lead to higher interest rates, which can lower share values. The shares of companies with solid earnings growth and pricing power tend to outperform in inflationary conditions.
Fixed-income investments, such as bonds, can be affected by inflation. However, Government issued index-linked gilts can provide inflation protection. Additionally, high-yield bonds can offer attractive yields and inflation protection.
Considering that gold’s price tends to increase as inflation rises, gold is often considered a hedge against inflation. However, gold can be volatile and should only make up a small portion of an investor’s portfolio. Investors should also consider diversifying their portfolio with investments such as commodities and real estate which can also provide some protection against inflation. Furthermore, it is important to maintain a diversified portfolio with investments from various asset classes to ensure that an investor can weather a variety of market conditions.
The historical average inflation rate in the UK over the last 10 years has been 2.3% pa. However, inflation rates can vary widely from year to year. In 2022 in the UK, inflation was measured at 9.2% compared to 0.8% in 2020.
Inflation can be beneficial for some investors, particularly those looking to increase their purchasing power. Low inflation generally benefits economic growth as it helps keep prices stable. This allows businesses to plan and invest for the future while also allowing consumers to buy goods and services without worrying about prices rising too quickly. Inflation can also lead to higher wages, which can help to stimulate economic growth. However, too much inflation can be detrimental to economic growth by eroding savings and reducing purchasing power. High inflation can also lead to increased interest rates, making borrowing more expensive and discouraging investment. This can lead to slower economic growth and reduce the potential for businesses to grow and create new jobs. In addition, higher inflation can reduce the value of investments and cause people to lose confidence in the economy. Therefore, it is important for governments to manage inflation and ensure that it does not exceed a certain level. Inflation can be beneficial in small amounts, encouraging spending and investment. The downside of high inflation is that it can lead to economic instability and a reduction in purchasing power.
Investors can protect their portfolio from inflation by diversifying across asset classes, investing in inflation-protected securities, and focusing on companies with pricing power and strong earnings growth. Inflation-protected securities, such as UK Government Index-linked gilts, may be a good option for investors looking to protect their portfolios from inflation. Other inflation-protected investments include property and commodities. Investors may also want to focus on companies with pricing power, as these companies are better able to pass on higher costs to customers, thus reducing the impact of inflation. Additionally, investors may want to look for companies with strong earnings growth, as this can help offset the effects of inflation.
Investors should regularly review their portfolios to ensure adequate inflation protection and to rebalance their portfolios as needed.
Many factors influence inflation, including monetary policy, economic growth, and supply and demand. Inflation indicators, such as the Consumer Price Index, can provide investors with insight into inflation trends.


A fact of life is that inflation can reduce the value of investments over time. Investing wisely, however, can protect investors’ purchasing power and even outperform inflation.

Equity investments, property, commodities, index-linked gilts, and high-yield bonds are all strategies that can help investors beat inflation. Before making an investment decision, investors should always consider their risk tolerance, investment goals, and time horizon.