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Navigating Inflationary Times — 4 Strategies to Help Protect Your Finances

By Jacob Henriksen-Willis

Published July 14, 2023 • 4 Min Read

Concerns about inflation are rising worldwide and are certainly top of mind for many Canadians. People are seeing the cost of gasoline, home prices, food and services increase as their purchasing power diminishes.

Mitigating the impact of inflation on your finances is a matter of planning, budgeting and staying informed. Here’s a few ways to help you navigate inflationary times:

Diversify your investments

But whether you’re a seasoned investor or just starting to save for retirement or education, it’s important to be aware of inflation risk.

According to RBC’s Sarah Riopelle, Vice President & Senior Portfolio Manager, Investment Solutions, “You know that I’m going to make a reference to being diversified, because that’s always my go-to response. Higher inflation is not always bad for your portfolio as long as you are well diversified.”

As the saying goes, don’t put all your eggs into one basket. Portfolio diversification means spreading your investments across different “asset classes” such as stocks, bonds, real estate and commodities. Instead of making just one or two big investments, having multiple smaller investments in your asset mix can help reduce risk. That’s because inflation can affect some asset classes more than others.

“At the end of the day, investing success is about preparing your portfolio for a wide range of outcomes, both good and bad,” Riopelle says. “Inflation being a good example of that. And then also focusing on the long term and being well diversified is a great way for investors to protect their portfolios from potential risks such as rising inflation.”

Focus on tangible assets

Tangible assets, or “hard assets,” are those that have physical substance. Real estate and precious metals such as gold or silver are good examples. These assets have long been considered a haven for investors during inflation — because they are existing objects, they are less dependent on monetary value.

You have likely invested in a few tangible assets already if you have bought a car, a house or even jewelry and antiques. The value of these commodities doesn’t have much positive correlation with stock and bond markets since they will likely always carry intrinsic value and may even appreciate during times of inflation.

Maintain a budget and monitor expenses

Rising prices can take a toll on your finances if you aren’t monitoring your expenses closely. Make sure you account for inflation and keep your budget flexible to prevent any unwanted surprises at the end of the month. With a good sense of your financial habits, strengths and weaknesses through regular reviews, you can make a personalized budget that can handle the pinch of inflation.

RBC’s NOMI budgeting tool makes personal finance easier by recommending a budget based on your spending and saving habits — and then actively helping you stick to it.

Check out Tips for Creating a Budget You Can Stick To for more practical budgeting tips.

Stay informed

Keeping up with economic changes and trends allows you to better plan your financial future. Long-term investments will heavily depend on the overall economic conditions and market trends influenced by inflation. A little knowledge can go a long way toward making investments that work with how much risk you’re willing to take.

Keep an eye on economic indicators such as the Consumer Price Index (CPI), inflation rates, and interest rates. It’s also a good idea to regularly monitor financial news and publications to stay informed about any significant developments or policy changes that may impact inflation.

With this knowledge, you can assess the potential risks and opportunities associated with different investment options, allocate your resources strategically, and take advantage of favourable economic conditions.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

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