What you need to know to protect your wealth from inflation

Almost 4 in 10 investors say they are either fairly cautious or looking for capital preservation - so where should you invest that hard-earned money?

Brian Tan, Head of Retail Sales, J.P. Morgan Asset Management, Singapore, said that investors expect inflation levels to remain above the 5% level in the next six months. "This, coupled with low interest rates, will cause the value of investors’ savings to be eroded. We thus recommend investors who seek income to look beyond traditional asset classes like bonds and deposits, to protect their wealth from inflation.”

According to a survey by J.P Morgan Asset Management, in describing their risk profile, the majority of investors say they are either fairly cautious (38%) or looking for capital preservation (42%). Those who tended to be more bullish were those who considered themselves risk takers and those below 35 years old.

Some 44% indicated that they do not intend to change their investment strategy, up 26% from six months ago. In terms of asset allocations, deposits (81%), stocks and related derivatives (75%) and insurance products (70%) will remain the most popular investments among local investors in the coming six months. The number of respondents turning more conservative fell 31% from six months ago to 24%. A higher percentage of respondents (31%, up from 29%) are also planning to be more aggressive in their investment strategy in the next six months, an increase of nearly 7%.

For less risk-averse investors, Mr Tan said: “While we are unlikely to see a catalyst for a major boost to equity returns in the near term, a lot of bad news is already priced in. Investors with a higher tolerance for risk may want to take advantage of attractive valuations to slowly move back into the market as there are plenty of opportunities for longer-term investors.”

Weighted by investible assets (excluding properties), stocks and related derivatives and savings accounts/time deposits are expected to make up just over half of the investors’ portfolio value in the coming six months, followed by mutual funds (15%).

The home bias continues to be evident in the latest survey when investors were asked which investment category they favour in the next six months. Singapore remains the favourite for 61%, of the respondents, followed by regional Asian countries. Interest in the US has picked up, from 10% of respondents six months ago to 17%. Interestingly, 7% of the respondents against 4% previously are also thinking of investing in Europe.

Mr Tan added, “Given the lack of any roadmap to end the Eurozone crisis, investors seeking to navigate the volatility of the markets should continue to stay flexible and seek portfolio diversification. We recommend diversified multi-asset portfolios with relatively moderate overall risk levels.”