Dale Jackson’s Top Four Strategies to Protect Investments from Inflation

Casey Halston

ago 2 hours

The current inflation rate in Canada stands at 2.2 percent. However, the actual increase in costs for essentials like food is approximately 4.7 percent. This disparity highlights a significant concern for Canadians planning their retirement investments. Rising living costs can diminish returns, making it crucial to develop strategies to protect investments from inflation.

Dale Jackson’s Top Four Strategies to Protect Investments from Inflation

While the Bank of Canada monitors inflation, external economic factors can impact interest rates, leaving many investors exposed. Unlike income from defined benefit pensions or government plans, those using defined contribution plans, self-directed Registered Retirement Savings Plans (RRSPs), or Tax-Free Savings Accounts (TFSAs) face tougher challenges. Fortunately, there are several strategies that investors can employ to safeguard their portfolios against inflation.

1. Commodity Equities

Investing in commodity equities can be a solid strategy during inflationary periods. Commodities such as crude oil, metals, and grains often benefit from rising prices. These investments can provide larger profits for producers while also acting as a hedge against a declining Canadian dollar. Investors have the option to venture into commodities through:

Exchange-Traded Funds (ETFs)
Futures market investments
Shares of commodity-producing companies

2. Short-Term Fixed Income

Diversifying investments with safe fixed-income options is essential. Government bonds can buffer a portfolio against stock market volatility. The proportion of fixed income you should hold depends on your risk tolerance and liquidity needs. Currently, Guaranteed Investment Certificates (GICs) offer one-year returns around 3.5 percent. To optimize returns and manage risk, consider using a strategy called laddering, which staggers maturity dates. Additionally, inflation-adjusted products like annuities or real return bonds can provide further protection, although they may reduce overall returns if inflation stabilizes.

3. Real Estate Investment Trusts (REITs)

While the real estate market faces challenges, property values tend to rise with inflation over time. This can create advantageous buying opportunities. A recent RBC report indicated that nearly half of wealth accumulation in Canada stems from home ownership over the last 30 years. By investing in Real Estate Investment Trusts (REITs), individuals can diversify their real estate investments across various sub-sectors. REITs encompass:

Residential properties
Commercial properties
Industrial properties

These entities generate income through rents and potential capital gains.

4. Fixed-Rate Mortgages

Higher inflation generally leads to increased borrowing rates. Homeowners with variable-rate mortgages are especially vulnerable to these fluctuations. A wise strategy is to secure a fixed-rate mortgage, providing stability for several years. Currently, 5-year fixed and variable rate mortgages are available at around 3.5 percent, making it a prime time to lock in a fixed rate.

In conclusion, by implementing these four strategies, Canadians can effectively protect their investments from inflation. This foresight can help ensure investment growth, even amidst economic uncertainty.