Petrol hike a reminder to invest to outperform inflation

By Janice Roberts
Tandisizwe Mahlutshana

Tandisizwe Mahlutshana

Last week the price of petrol rose by over 40c. The price of 95 octane petrol has risen around R2.00 per litre since March 2016 with the inland price now at R13.05. If you fill up with 95 octane three times this month and own a car with a 40 L tank, this will now cost R1566.00 for the month – up R240.00. While this may not seem like much to some, consider that a mere 13 years ago, in 2003, it would have cost just R480.00.

Naturally, prices will increase over time. As the prices of goods and services rise, the purchasing power of your money declines.

There have been notable fluctuations in CPI inflation over the years, says Tandisizwe Mahlutshana, Executive of Marketing at PPS Investments.

“In fact, according to Trading Economics, inflation reached a high of 20.9% in January 1986 and a low of 0.20% in January 2004. The inflation rate has however rarely averaged less than 6% over rolling 5-year periods since 1968 – averaging 9.27% from 1968 until 2016.

“Currently, CPI inflation is roughly around 6%. So to put current inflation figures in context, you will now need to spend an average of about 6% more than you had to a year ago to maintain your current lifestyle. Not all goods’ prices will rise at the same level, but CPI is generally the most common measure South Africans use to monitor inflation.”

Mahlutshana says it’s critical that what you save today for retirement accommodates the potentially reduced purchasing power of your savings when you retire. To preserve your current purchasing power, you’ll need to ensure that your savings are invested not only to grow in line with inflation, but to exceed it.

For investors seeking to preserve their purchasing power, there are various types of investment solutions that are geared towards outperforming inflation. Typically inflation-linked unit trusts allow investors to beat inflation as they have inflation-related targets as performance benchmarks. CPI benchmarked investment portfolio typically target returns in excess of inflation over specific timeframes and risk profiles.

“The option you choose will depend entirely on your financial goals, time horizon, risk profile and your assessment of your requirements. For example, investors with a higher risk appetite and longer investment horizons could consider a unit trust that aims to outperform CPI Inflation by 4%. Investors with lower risk appetites and shorter to medium-length investment horizons could consider targeting growth that equals CPI, or outpaces inflation by 2% or so. A financial adviser can help you here.

“In all instances, you’ll benefit from the expertise of experienced asset managers who target inflation-beating returns on your behalf.”

By making appropriate investment decisions and ensuring that your investment fees remain reasonable, you can make headway in preserving your purchasing power – even when CPI inflation is making the headlines, Mahlutshana says.

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